what is overtime

You need to check your local laws for any limits as to the amount of overtime an employee can legally work. While it may be safe to assume salaried workers can’t collect overtime, Robert L. Föehl, business law and ethics professor at Ohio University, said that couldn’t be further from the truth. Department of Labor’s Fair Labor Standards Act (FLSA) enforces overtime requirements that depend on whether a worker is exempt or non-exempt.

The FLSA applies to any US employer with annual sales of $500,000 or more or who is engaged in interstate commerce. The interstate commerce requirement has been interpreted very broadly, meaning the FLSA applies to most US employers. In the US, overtime is regulated at a federal level by the Fair Labor Standards Act (FLSA).

Why Some Employees Are Exempt From Overtime

When most people talk about overtime, it’s typically in the context of a 40-hour workweek paid on an hourly basis. Some weeks, there’s crucial work left over even after your full-time employees have put in their 40 hours. While you can ask your employees to complete extra work, it will cost you more than their usual hourly rate. We’ll explore overtime pay and what every small business owner should know to fulfill legal obligations and correctly compensate their employees. In most jurisdictions, the employer pays all overtime pay accrued during a given workweek on the employee’s regular payday for their usual pay period.

Be sure to check the overtime laws in your country and state for the minimum standards you need to comply with—as failing to do so can result in severe penalties. It’s also essential to carefully manage and track overtime to ensure you’re paying your employees correctly. Sometimes nonexempt employees who are normally paid a fixed hourly rate work certain hours, usually at undesirable times, which grants them additional hourly pay. In such cases, employers must use the blended rate or weighted average of all rates paid in order to calculate the overtime premium due for hours worked over 40 in the workweek.

Calculating Overtime for Exempt Employees

But for whatever reason, the sales rep doesn’t meet the DOL’s requirements for exempt employees who earn a commission. The hourly pay should reflect any non-discretionary additional pay on top of an employee’s standard hourly rate, such as shift differential or production bonuses. In states that calculate overtime per workday, employers must apply the applicable overtime rate to each hour beyond what’s considered a regular workday, e.g., eight hours.

Legislative Session Goes Into Overtime: NYLCV Bills on the Line – New York League of Conservation Voters

Legislative Session Goes Into Overtime: NYLCV Bills on the Line.

Posted: Tue, 20 Jun 2023 11:49:35 GMT [source]

Certain types of other compensation, such as the following, must be included in overtime calculations. Overtime does not work so well when a business experiences relatively steady sales levels. Also, employees can wear down under the impact of large amounts of overtime over an extended period of time (despite the extra money they earn). Three basic tests can help you determine how to categorize your employees. An exempt employee will meet the requirements of all three tests, but you should still consult legal counsel to determine their applicability to your employee’s specific job role and compensation. To ensure compliance with FSLA’s overtime regulations, the company should conduct an audit at least once yearly.

Fact Sheet: Overtime Pay, Title 5

There is scientific proof that a human being is less productive on the eighth or tenth hour of work than at the beginning of their shift. The standard workday, according to many labor law regulations, is eight hours, and a workweek comprises 40 hours. Independent contractors are not employees covered by overtime laws and so it is important to determine if a worker is an independent contractor or an employee. For instance, an employee who works nine hours per day for four work days may be scheduled for only four hours on the fifth day of the week to avoid overtime.

  • They usually do this by persuading employees to waive their right to overtime pay, averaging their overtime hours over several weeks, or even straight-up refusing to pay workers for their overtime work.
  • The FLSA outlines how employers should classify employees; failure to correctly classify employees can result in costly penalties that can retroactively apply as far back as the employee’s hire date.
  • Certain types of other compensation, such as the following, must be included in overtime calculations.
  • A salary is intended to cover straight-time pay for a predetermined number of hours worked during the workweek.
  • As a result, failure to comply with the FLSA could cost 200% more than just paying the overtime in the first place.

This calculation may differ in states that have requirements, such as double time, which are more favorable to the employee. HR must ensure the company complies with all wage and hour off balance sheet legislation concerning overtime. The Federal government’s minimum standard is one and a half times the regular pay rate for non-exempt employees who work over 40 hours per week.

Make Payroll Smooth and 100% Accurate

In the United States, employers that require or allow their workers to work overtime are usually required to pay a premium rate of at least time and a half. However, with more and more companies implementing policies that discourage or prohibit overtime, it’s possible that the days of working long hours for extra pay are numbered. The good news is, if you need to pay your employees overtime, that means there’s no lack of demand for your company’s services. What’s more, no matter the size of your business, you can use tools that make it easy to calculate and pay employees for the overtime they accrue. As an employer, it’s your responsibility to properly categorize your employees as exempt or nonexempt for the purposes of overtime. The FLSA criteria around this can be complex to understand and apply so it’s worth seeking legal advice on this.

what is overtime

How do you calculate overtime?

According to the FLSA, the formula for calculating overtime pay is the nonexempt employee's regular rate of pay x 1.5 x overtime hours worked.