Overtime Pay
The Fair Labor Standards Act (FLSA) sets federal requirements for overtime pay and distinguishes employees who are exempt and non-exempt from these rules. The FLSA requires that employers pay at least minimum wage for up to 40 hours in a work week and overtime pay for any additional time unless the employee falls in an exemption category.
Exempt vs. Non-Exempt
Under the FLSA, “non-exempt” employees need to be paid overtime. “Exempt” employees meet certain qualifications and don’t have to be paid overtime.
To be considered exempt, employees must be paid a certain salary and must fall in an exemption category (the most common being executive employee, administrative employee, or professional employee). While they sound simple, these categories have surprisingly stringent prerequisites. For example, executive employees must oversee other employees, administrative employees must have a lot of discretion in their job, and professional employees must have some very specific, difficult training (like doctors, lawyers, computer engineers, etc.).
When in doubt, classify your employees as non-exempt and either pay overtime for time worked over 40 (forty) hours per week or don’t allow them to work over 40 (forty) hours per week.
Hourly vs. Salaried: Employers often think about employees in terms of “hourly” versus “salaried,” and think all hourly employees are eligible for overtime pay and all salaried employees are exempt and don’t get overtime for extra hours worked. This is not the case. Being “salaried” is not enough to make an employee exempt from overtime.
For more information on how to treat wage and hourly employees, head over to our article on the subject.
Which Employees are Exempt?
Per the federal Department of Labor, employees are exempt only if:
- They are paid on a salary or fee basis (NOT an hourly wage); AND
- They earn at least $684 week (although this number is constantly changing, so we recommend checking the latest regulations); AND
- They must qualify for one of the exemptions, including:
- Executive exemption: The employee must have the primary duty of managing the enterprise or one of its divisions/subdivisions, they must customarily and regularly direct the work of at least two employees, and they must have the authority to hire or fire, or their input into hiring and/or firing decisions must be given substantial weight.
- Administrative exemption: The employee’s primary duty must be office or non-manual work, this work must directly relate to the management or general business operations of the employer or employer’s customers, and their primary duty must include the exercise of discretion and independent judgment regarding matters of significance.
- Professional exemption: The employee’s primary duty must require advanced knowledge in a field of science or learning customarily acquired by prolonged instruction and study, or they must specialize in a similarly skilled field, such as teaching, computer analytics, and engineering.
Or if they fall into another category of exemption, such as outside sales employees or computer employees. Employees who do not meet all of the requirements for one of these categories are non-exempt.
Consequences of Misclassification
Employers who misclassify non-exempt employees as exempt could face the following consequences:
- Fines from the state and federal government.
- Back pay to employees who should have been paid overtime.
- Legal fees, in case you must hire an attorney to handle a matter in court, review documents, or perform an employee audit.
We’ve found that employers unintentionally misclassify employees all the time. The best recommendation is to speak with an attorney about the classifications and err on the side of classifying employees as non-exempt. The Department of Labor offers a helpful click-through test to help determine how to classify your employees.
If you’d like further guidance, we’d love to help! Reach out with your questions and we’ll see which employment solution is right for you.
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