Overtime pay: Who gets it and who doesn’t?

As a payroll services provider, one question we get asked time and time again is “When is overtime due?” That’s a bigger question than many employers realize.

Nonexempt employees must be paid at least the minimum wage for all hours worked. In Colorado, an overtime premium for hours worked over 40 hours in a single workweek or 12 hours in a single day also must be paid to nonexempt (meaning hourly) employees.

The Fair Labor Standards Act (FLSA), also known as the Federal Wage-Hour Law, is the fundamental federal law governing how to pay employees. The FLSA sets the standard for minimum wage and overtime pay, requires record keeping by all covered employers, restricts the type of work minors can do and the hours they can work and mandates equal pay for equal work. This law also requires employers to pay covered employees at least the federal minimum wage and overtime pay. According to FLSA, overtime is calculated as 1.5 times the regular rate of pay.

The issue can be complex. What’s the difference between an “exempt” (salaried) and “nonexempt” (hourly) employee? Generally, when referring to exempt and nonexempt employees, one is referring to the employee’s status under the FLSA.

Exempt employees are those who don’t have to be paid under the FLSA requirement to be paid either minimum wage or overtime pay. Generally speaking, these are employees who’re paid a salary and not an hourly rate.

One might think: “Oh I have a great idea, we’ll just put everyone on a salary and avoid the FLSA overtime premium.” Just because employees are paid a salary, doesn’t mean they’re exempt from overtime.

Employees are classified as exempt or nonexempt for the purposes of FLSA regarding minimum wage, overtime and record keeping. Exempt or nonexempt classification is determined by the actual job duties and salary level, not the job title or job description.

There are several classifications and job duties for the white collar exemption, including: administrative employees, professional employees, executive employees, learned professionals, creative professionals, computer professionals and outside sales employees. For each type of employee listed above, each must meet specific job duties outlined by FLSA. Exempt employees also must be paid minimum salaries.

The minimum weekly salary requirement under the regulation for exemption from minimum wage and overtime as an executive, administrative or professional employee is $455 per week. The regulation contains a “salary basis” test under which exempt employees must be paid their full salary regardless of the “variations in the quality or quantity of the work performed.” The rules prohibit deductions from exempt employees pay for partial day absences.

There is a workplace misconduct clause that will allow an exception to the no-pay-docking rule for deductions for disciplinary suspensions of one or more full days for workplace misconduct. If that salaried employee drops below the $455 per week, then the employer is required to pay minimum wage and pay overtime.

FSLA offers a great deal of clarification regarding all of the details for salaried versus hourly employees. As an employer, you must be sure that when you designate an employee as salaried, they indeed fit within the guidelines and that you’re compliant for your industry and state.

As a general rule, the laws are written to protect employees from employers who simply want get more hours out of their employees and not pay overtime. If you’re not sure what your employee’s status should be, find out. The associated penalties are not fun at all. They will probably involve labor audits for your current year and commonly for previous years as well. If you intentionally misclassify an employee, you will most likely have to pay overtime in arrears for all affected employees.

If you’re a multi-state employer, remember that some state laws are stricter than the standards imposed by FLSA regulations and must be followed. What’s in favor of the employee generally prevails.

More information on exempt vs. nonexempt employees and overtime pay is available from the Department of Labor Web site at www.dol.gov.