Paying overtime may be expensive, but not paying it properly can create even more liability for your organization. In our previous post, we focused on five overtime questions (numbered one through five), including what the basic overtime requirements are, whether overtime must be paid for weekend work, and how overtime is calculated.
In this post, we address five more common overtime situations, numbered as questions six through ten. You will find out when overtime has to be paid in holiday or vacation weeks, whether compensatory time off can be given instead of overtime, when unauthorized overtime should be paid, and what the penalties are for noncompliance.
6. Are employees entitled to overtime in weeks they receive holiday pay or take vacation?
Not unless the employee actually works more than 40 hours in the workweek. Overtime is calculated based on the number of hours an employee has worked, not the number of hours the employee is paid in a week. Thus, in calculating actual working hours for a nonexempt employee, you do not have to count any paid time off in the overtime calculation if the employee did not perform any work during that period, such as paid holidays, vacation, or sick leave.
7. Can we give nonexempt employees compensatory time off instead of paying them cash for overtime?
Private employers generally may not offer or require the use of compensatory time-off in place of overtime pay. However, special provisions (found in 29 U.S.C. §207(o) and 29 C.F.R. §553.23-27) allow certain public employers (such as state and local governments) to grant compensatory time off at the rate of not less than one and one-half hours for each hour of overtime in lieu of overtime cash compensation. This practice is permitted only when the government employer and employee agree on it before the work is performed, either through individual or collective bargaining agreements.
Note, that in certain cases in the private sector where the pay period is more than a week, it may be possible to provide the equivalent of compensatory time off, instead of overtime, as long as the extra hours worked are offset within the same pay period that they are earned. So, for example, in a two-week, 80-hour pay period, if a nonexempt employee works 45 hours in the first week, he should work only 32.5 hours in the second week, taking 7.5 hours as paid time off. The 7.5 hours would represent the five hours of overtime worked in the first week times 1.5. Thus, as a practical matter, the employee receives overtime for the extra five hours worked in the first week because he is still being paid for 80 hours although he has worked only 77.5 in the two-week period. However, the nonexempt employee should not be allowed to accrue the paid time off for use in another pay period since this practice could violate the FLSA.
8. Are exempt employees ever entitled to overtime? Can we pay them overtime?
By definition, exempt employees (such as executive, administrative, and professional employees) are exempt from the overtime and minimum wage requirements of the FLSA and so are not entitled to overtime pay. They generally receive the same salary regardless of the number of hours they work or the quantity or quality of their work.
However, the FLSA exemption regulations, found at 29 C.F.R. §541.604(a), allow you to provide extra compensation to exempt employees without affecting their exempt status. This additional compensation can be paid on any basis, including a flat sum, bonus payment, straight-time hourly amount, time and one-half, or any other basis, including paid time off. So, for example, if an exempt employee worked extra hours to complete a special project, you could pay her overtime without affecting her exempt status.
9. Do we have to pay overtime that we do not authorize?
If you are aware that a nonexempt employee is working more time than is authorized, you must compensate the employee, even if you did not specifically request the additional work. For example, an employee may
voluntarily continue to work at the end of the shift to finish an assigned
task. If you know or have reason to believe that the employee is continuing to work, the time is considered working time that must be paid. It is management’s duty to stop employees, through discipline or other non-monetary means, from working additional time if you do not want to pay for the work time. Note, too, that just having a rule against extra work is not enough; you also must make sure the work is not performed.
10. What are the penalties for not paying overtime?
Your organization can be liable for back overtime pay for up to two years for any employee who has not been properly paid. This back pay liability typically is extended to three years if you are found to have willfully (intentionally) violated the law. In addition, you could be hit with civil penalties of $1,100 per willful or repeated overtime violation. And, to make matters worse, human resources professionals, business owners, and even managers can be held personally liable for violations.
And finally, if you have a broad practice of not paying overtime to employees, you may find your organization subject to a class action claim involving multiple employees, which can result in even bigger payouts. As an example, Wal-Mart recently agreed to settle nearly 65 federal and state class action lawsuits involving allegations of unpaid overtime and break time requirements for a reported $640 million.
Distributed by Sunburst Software Solutions, Inc. with permission from:
HR Matters E-Tips, copyright Personnel Policy Service, Inc., Louisville, KY, all rights reserved, the HR Policy and Employment Law Compliance Experts for over 30 years, 1-800-437-3735. Personnel Policy Service markets group legal service benefits and publishes HR information products, including the free weekly electronic newsletter, HR Matters E-Tips (www.ppspublishers.com/hrmetips.htm). This article is not intended as legal advice. Readers are encouraged to seek appropriate legal or other professional advice.
Crew/Overtime Entry Solution for QuickBooks was developed because overtime rules can be complex and manual calculations are time-consuming and error prone. Find out more about Crew/Overtime Entry Solution by clicking here.
The requirement to pay employees overtime seems simple enough; once a nonexempt employee has worked 40 hours in a single workweek, each additional hour worked MUST be paid at time and one-half the regular rate of pay. Yet, many employers are confused about the mechanics of implementing the law, such as how overtime pay is calculated when a nonexempt employee is paid a salary or works two jobs.
This confusion can be expensive. The Department of Labor (DOL) recently issued enforcement data for Fiscal Year 2008 (FY 2008) which showed that the agency collected over $123 million in back wages for overtime violations under the Fair Labor Standards Act (FLSA). The violations covered over 10,000 wage claims involving almost 183,000 employees and represented 88% of the claims filed with the DOL. The DOL also assessed an additional $3.1 million in civil penalties against employers that violated the FLSA.
Clearly, noncompliance with the overtime requirements can be expensive.
In this post, Part I, we will address five of the ten of the most common overtime questions to help you ensure your organization does not end up on the wrong side of a wage claim. You’ll also find out what the basic overtime requirements are, whether overtime must be paid for weekend work, and how overtime is calculated.
In Part II, we’ll explain when overtime has to be paid in holiday or vacation weeks, whether compensatory time off can be given instead of overtime, when unauthorized overtime should be paid, and what the penalties are for noncompliance.
1. What are the basic overtime requirements?
The FLSA requires covered employers to pay nonexempt employees who work more than 40 hours in a single workweek at least one and one-half times their regular rate of pay for each hour worked over 40. (See 29 U.S.C. §207(a)(1).) “Nonexempt” refers to employees covered by the minimum wage and overtime requirements of the FLSA, i.e. those who are not exempt from it.
For the purpose of determining overtime compensation, the FLSA uses a single workweek as its standard and does not permit averaging of hours over two or more weeks. So, if an employee works 30 hours one week and 50 hours in the next, he must receive overtime compensation for the ten hours he worked in excess of 40 int he second week, even though the average number of hours worked in the two weeks is 40. In addition, according to the Supreme Court, employees are not permitted to waive their rights to overtime compensation under the FLSA.
2. Does federal law require daily OT or overtime for weekend work?
No. The FLSA does not require pay at the overtime rate for hours worked in excess of eight per day, or for work on Saturdays, Sundays, or holidays, as long as the employee has not worked more than a total of 40 hours in that workweek. (See 29 C.F.R. §778.102.)
A few states, however, have more restrictive overtime requirements and require employers to pay overtime on a daily basis. For example, in addition to weekly overtime, California requires employers to pay daily overtime at the rate of one and one-half the regular rate of pay for all hours worked over eight in a single day and at double the regular rate of pay for all hours over 12 in a single day. In addition, time and one-half must be paid for the first eight hours worked on the seventh consecutive day of work, as well as double time for all hours over eight worked on that day. Accordingly, you should check your state overtime
requirements.
3. Is there a limit on the number of overtime hours an employee can work?
Not under federal wage law. The FLSA and its regulations do not limit the number of hours that employees may work in any workweek. Employees may work as many hours a week as they and the employer see fit. (See 29 C.F.R. §778.102.)
A few states do have limits on the number of hours employees can work. For example, in Maine, employers may not require employees to work more than 80 hours of overtime in a two-week period, except for certain “essential services” employees. And West Virginia limits the amount of overtime employers may require nurses to work.
4. How is overtime calculated?
The first step in calculating the amount of overtime that must be paid an employee is to determine the employee’s regular rate of pay. The FLSA defines the “regular rate” as all remuneration for employment paid to or on behalf of the employee, before any deductions from wages are made, although some items of compensation do not have to be included in the calculation. (See 29 U.S.C. §207(e); 29 C.F.R. §778.109.)
Even though nonexempt employees do not have to be paid only on an hourly basis, in order to calculate overtime payments, the regular rate must be stated as an hourly rate. So, for employees not paid a regular hourly rate (like those whose compensation is determined on a piece-rate, salary, or commission basis), the regular hourly rate is derived by dividing the total compensation by the total number of hours actually worked. In addition, certain bonuses and incentives (like those dependent on hours worked, productivity, or efficiency), and extra pay for shift differentials or “dirty work” generally must be considered in calculating the employee’s regular rate. But other types of compensation, like discretionary bonuses and some premium pay for weekends or holidays, are excluded from an employee’s regular rate of pay and, therefore, do not affect the overtime pay rate.
5. What if a nonexempt employee works two jobs?
Calculating overtime can be a little tricky when an employee works two or more jobs for which the employee is paid different hourly rates since overtime must be based on the employee’s “regular rate of pay.” Typically, according to the FLSA regulations found at 29 C.F.R. §778.115, the employee’s regular rate of pay when he works two jobs is calculated as the weighted average of the different rates.
For example, the regular rate of an employee who works 35 hours per week at $15 per hour as a machine operator ($525), and works 10 hours that same week at $8 per hour cutting the grass outside the plant ($80), is $605 divided by 45 hours or $13.44 per hour. The overtime premium owed the employee is an additional $6.72 ($13.44 divided by 2) for each hour over 40, regardless of which job the employee performs during the extra hours. (The employee in the example has already been paid straight time for the first 5 overtime hours and is only entitled to the additional “half” of the time and one-half of overtime pay on the balance over 40.) Accordingly, the employee would be paid an additional $33.60 in overtime ($6.72 times 5 hours), so that the employee’s total pay for the week would be $638.60 ($605 straight time pay plus $33.60 overtime premium). The employee’s regular and overtime rates may vary from week to week with the number of hours spent performing each job.
Alternatively, as explained in the FLSA regulations at 29 C.F.R. §778.419(a), an employer and employee may agree, before the work is performed, that the overtime rate will be based on the regular rate that applies to the type of work performed during the hours in excess of forty. Therefore, if an employee spends 35 hours in a week working as a machine operator at $15 per hour, and five hours a week cutting the grass at $8 per hour, the overtime rate for any additional hours spent cutting the grass is $12.00 per hour ($8 times 1.5). Conversely, the overtime rate for any additional hours spent working as a machine operator is $22.50 ($15 times 1.5). This method of computation is available for hourly employees only and does not apply to nonexempt salaried employees.
Distributed by Sunburst Software Solutions, Inc. with permission from:
HR Matters E-Tips, copyright Personnel Policy Service, Inc., Louisville, KY, all rights reserved, the HR Policy and Employment Law Compliance Experts for over 30 years, 1-800-437-3735. Personnel Policy Service markets group legal service benefits and publishes HR information products, including the free weekly electronic newsletter, HR Matters E-Tips (www.ppspublishers.com/hrmetips.htm). This article is not intended as legal advice. Readers are encouraged to seek appropriate legal or other professional advice.
Crew/Overtime Entry Solution for QuickBooks was developed because overtime rules can be complex and manual calculations are time-consuming and error prone. Find out more about Crew/Overtime Entry Solution by clicking here.
