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Primer on Overtime Pay

Posted by attorney Lawrence Sherman

Overtime Pay

The overtime premium is half of your usual hourly rate. This means you are entitled to “time and a half" – the employee’s usual hourly rate plus the 50% overtime premium – for every overtime hour you work.

Not all employees are eligible to receive overtime. An employee’s right to receive overtime pay is dependent on the nature and extent of coverage required by federal and state law. The key determinants are (1) the nature and extent of the employee’s job duties and (2) the number of hour per week that the employee regularly and routinely works.

Which Employers Have to Pay Overtime

While a vast majority of employers are required to pay overtime, this requirement does not necessary apply to all employees who work for the employer. Nor does this requirement apply to very small employers.

In order to determine whether an employer is required to pay overtime, it is necessary to determine whether it is covered by the Federal Fair Labor Standards Act (FLSA), which is the wage and hour law passed long ago by the Congress and which set forth the basic principles that govern overtime pay. A business is ordinarily covered by the FLSA if it has $500,000 or more in annual sales or revenues.

Even if the employer is smaller, however, it may still covered by the FLSA if it is engaged in what Congress calls “interstate commerce" – i.e., conducts business across state line by between states. Interstate commerce is a very elastic concept and includes making telephone calls, email or sending faxes to or from another state, sending mail out of state, or shipping handling packages or products that come from or go to another state.

If the employer is so small or local to be covered by the FLSA, it still might be covered by the overtime law of the state in which it has a home base or is doing business. In cases of doubt, it is always a good idea to contact the labor department of the state where the employee works to get further information.

The Classes of Employees Entitled to Receive Overtime Pay

If an employer is covered by the FLSA, it must pay overtime to all eligible employees unless one or more of these employees come within an exemption from this legal requirement. If the employee falls into one or more of these categories, the employee is “exempt" from the federal overtime law. State overtime laws generally use the same definitions and follow the same rules as federal law. For this reason, among others, it is often a good idea to for the employer or employee to seek guidance from the local office of the Department of Labor (“DOL") or to go on its Website ( www.dol.gov), which is very informative.

Exempt status means that the employer is not required to pay overtime and, consequently, the employee is not eligible to receive overtime pay for hours worked over 40 in any given work week. Exempt workers include the following categories, among others:

ü Executive, administrative, and professional employees who are paid on a salary basis (Please see discussion below.)

ü independent contractors

ü Outside salespersons (employees who customarily and regularly work away from the employer's business, selling or taking orders to sell goods and services)

ü Various computer specialists (e.g., systems analysts, programmers, and software engineers), who earn at least $27.63 per hour, and who fall within the scope of a specific regulation issued by DOL

ü employees of seasonal amusement or recreational businesses, such as ski resorts or county fairs

ü Criminal investigators, and/or

ü Casual domestic babysitters and individuals who provide companionship to those who are unable to care for themselves. (Note: this exception does not apply to individuals who provide nursing care or to personal and home care aides who perform a variety of domestic services.)

Administrative, Executive, and Professional Employees

“White collar" workers employees whom the law defines as “administrative, executive, or professional" are not eligible for overtime pay. To fit into one of these exempt categories, the employee must be paid on a salary basis and must spend most of his/her work time performing job duties that require the use of discretion and independent judgment.

  1. ¶Payment on the Basis of Receiving a Salary

An employee is paid on a salary basis if he/she earns at least $455 per week and receives the same base salary every week regardless of how many hours that he/she actually works and/or the quantity or quality of the work performed on behalf of the employer.

There are a few circumstances in which an employer may pay a salaried worker less than a full salary for a week. Examples: employees who take a few days off and receive paid sick or vacation leave or take paid or unpaid time off under the Family and Medical Leave Act. However, it is the general rule that if an employer docks an employee's pay (e.g., for taking a personal day), then the employee is not paid on a salary basis and is entitled to overtime.

  1. Job Duties

Even if the employee earns $455 or more per week and his/her wages are not subject to “docking", the employee is not necessarily exempt from the overtime requirement. In order to be exempt, the employee must also be performing the type of work that (a) generally requires an advanced degree; (b) is managerial or supervisory in nature; or (3) requires the individual to make relatively high-level business decisions. Set forth below in layman’s terms are the basic requirements for the administrative, executive, and professional exemptions.

ü An administrative employee must perform office or other non-manual work, which is directly related to the management or business operations of the employer or its customers, and must exercise discretion and independent judgment regarding significant issues.

ü An executive employee must have as a primary duty responsibility for managing the employer's enterprise or a recognized division or department of that enterprise. Additionally, the employee must regularly supervise at least two full-time employees (or the personnel equivalent of this number) and also must have the authority to hire and fire and/or have significant input into hiring and firing decisions.

ü A professional employee must have as primary duty either the performance of work that requires advanced knowledge in the field of science or learning of a type that is usually attained through an advanced course of study (e.g., engineering, nursing, law, etc.). An individual also may be classified as a professional employee is he/she is performing work that requires invention, imagination, originality, or talent in a recognized creative or artistic field.

For more detailed and specific guidance, please consult the DOL Website, www.dol.gov.)

  1. When Have You Worked Overtime?

Under the FLSA, an employee has is eligible for overtime pay if he/she has worked more than 40 hours in a week. Some states calculate overtime differently, however. For example, California and a few other states have a daily overtime standard, which makes employees eligible for overtime once they have worked eight hours in a day, even if they don't work more than 40 hours in a week.

  1. How Overtime Is Calculated

If an employee has worked in excess of 40 hours in a work week, he/she is eligible to receive the overtime premium required by law for the extra hours worked. In order to determine the amount of the overtime premium, the employee must calculate first calculate his/her “regular rate" of pay. This rate includes all compensation the employee receives from his/her employment (e.g., wages, commissions, performance-based bonuses, shift differentials, etc. This calculation does not include compensation or items that the employee receives that are not intended as part of his/her compensation (e.g., expense reimbursements, a holiday bonus, etc.) or the value of employee perks, such as a parking space.

If eligible, the employee is entitled to a 50% premium for every overtime hour you work or to be paid time and a half – namely, 150% of his/her regular rate of pay.

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