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Primer on overtime pay

Posted by attorney Lawrence Sherman

If you're working overtime, you're entitled to “time and a half" (your usual hourly rate plus a 50% overtime premium) for every overtime hour you work.

Not all employees are eligible to receive overtime. Your right to receive overtime pay depends on the coverage required by federal and state law. The key factors are:

  • the nature and extent of your job duties
  • the number of hours per week that you regularly and routinely work

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. It also may not apply to very small employers.

In order to determine whether an employer is required to pay overtime, you first need to determine whether it is covered by the Federal Fair Labor Standards Act (FLSA), a wage and hour law passed by the Congress 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 are exempt from this legal requirement. Employees are exempt from the federal overtime law if they fall into one or more of the following categories:

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

  • Independent contractors

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

  • 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

  • Employees of seasonal amusement or recreational businesses, such as ski resorts or county fairs

  • Criminal investigators, and/or

  • 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.)

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 employers or employees to seek guidance from Department of Labor (DOL).

Administrative, executive, and professional Employees

“White collar" workers that 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
  • Spend most of his/her work time performing job duties that require the use of discretion and independent judgment

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 include 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, the general rule is 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.

Job duties

Even if you earn $455 or more per week and your wages are not subject to “docking", you're not necessarily exempt from the overtime requirement. In order to be exempt, you must also be performing the type of work that (a) generally requires an advanced degree; (b) is managerial or supervisory in nature; or (c) requires the individual to make relatively high-level business decisions. Below are the basic requirements for the administrative, executive, and professional exemptions.

  • 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.

  • 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.

  • 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.

When have you worked overtime?

Under the FLSA, you're eligible for overtime pay if you have 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.

How overtime is calculated

If you've worked more than 40 hours in a work week, you're eligible to receive the legal overtime premium for the extra hours worked. In order to determine the amount of the overtime premium, you must calculate first calculate your “regular rate" of pay. This rate includes all compensation you receive for your employment (e.g., wages, commissions, performance-based bonuses, shift differentials, etc. It does not include compensation or items you receive that are not intended as part of your compensation (e.g., expense reimbursements, a holiday bonus, etc.) or the value of employee perks, such as a parking space.

If eligible, you are entitled to a 50% premium for every overtime hour you work, or to be paid time and a half – namely, 150% of your regular rate of pay.

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