Whenever an employee works more than 40 hours a week or 80 hours in two weeks, depending on agreed pay period, that employee is entitled to one and a half times their hourly rate for each hour over 40 that they work. But what about employees who receive a salary? Does your staff have to receive overtime if they also perform administrative tasks? It might not seem complicated at first, but the Fair Labor Standards Act (the law that governs overtime, among other labor practices) has some stiff consequences if you fail to pay an employee their overtime; twice the value of their unpaid wages. How can you avoid such a stiff penalty? By paying careful attention to your business model, the role of your employees, and the FLSA.
Employees who are Exempt from Overtime
The first major exemptions to overtime pay are administrative and professional employees. If you have employed secretaries, attorneys, economists, or any other profession which either handles administrative tasks or requires a college education, those employees are not entitled to overtime pay. But what if you have receptionists who also work as sales assistants? The formula to figure out if they are entitled to overtime is as follows; if an employee spends 60% of their time at work performing administrative or professional tasks, they are not entitled to overtime. In the course of a 40-hour work week, if the employee performs administrative tasks for 24 hours or more, they are not entitled to overtime. For an 80-hour work week it would be 32 hours or more.
Other exemptions include amusement park employees, if the amusement park is only open 7 months a year and in that same year made less than 33⅓% of the previous year’s profits, fisherman, agricultural employees, newspaper employees, and computer systems analysts, computer programmers, software engineers, and similar skilled workers.
Salaried Employees
If you notice, none of the above exemptions have anything to do with whether an employee is paid hourly or a salary- so if you do pay your employees a salary, how do you calculate overtime? If they work a different number of hours per week, and both you and your employee understand that compensation covers their work regardless of the number of hours they have worked. So if their salary is $600.00 per week, they will be paid that $600.00 whether they work 37 hours or 40 hours. If they work more than 40 hours in that week, calculating overtime is simple. Say your employee is compensated $600.00 per week, and they have worked 50 hours in one week. You divide the salary by the total number of hours worked, or $600.00 / 50. That gives you the hourly pay rate for that week, $12.00 per hour. For the fluctuating workweek, you calculate overtime by multiplying that hourly rate by .5, so for our example it would be $6.00. You then take that overtime rate and multiply it by the number of hours worked that is above 40. In our case, that would give us $6.00 x 10, which equals $60.00. So, for our imaginary employee who we pay $600.00 per week, who has worked 50 hours this week, we would have to pay him $660.00.
Why Hire an Attorney?
This is only a brief overview of the rules involved in paying employee overtime, and only some of the potential consequences.