Understanding Overtime: When It Applies and What It Requires
Remaining legal and upholding positive employee morale in all aspects of work schedules and employee pay can be difficult for small businesses because of the complexity of overtime laws and regulations.
There is no limit to the amount of hours an adult over the age of 16 can work; however, any employer who requires or allows employees to work overtime is subject to rules regarding premium pay and exemption status under the Fair Labor Standards Act (FLSA.)
Employees covered by the FLSA must receive a premium pay of at least one and one-half times their regular rate of pay for hours worked in excess of 40 hours in one workweek.
In addition, employee attitudes can vary greatly from appreciation to resentment regarding overtime. For this reason, it is important to establish fair overtime policies for employees while still ensuring company needs are met.
When It Applies
Certain situations and circumstances frequently warrant overtime, such as heavier-than-normal workloads and unfilled vacancies in a work schedule.
Although the majority of businesses are required to pay overtime, not all are always required to. To determine whether your business is required to pay overtime, you must figure out whether you are covered by FLSA. This coverage requires $500,000 or more in annual sales and/or employee participation in interstate commerce. If your business meets those standards, it is required to follow overtime rules.
However, even if your business is smaller than these standards and only operates locally, it is potentially still covered by your individual state’s overtime laws. For more information, contact your state Labor Department.
Overtime pay and procedures apply to employees that are deemed non-exempt employees under the FLSA. Exempt or non-exempt status must be stipulated in the employee’s contract.
The employer determines if a position is exempt or non-exempt using the three-stage test provided by the FLSA. A basic overview is as follows:
- Salaries level test: Employees who are paid less than $23,600 per year are non-exempt.
- Salary basis test: Employees who have a guaranteed minimum amount of money he or she can count on receiving for any work week in which he or she performs any work.
- Job duties test: Particular job duties are exempt if the work is considered high-level work.
An extensive Exemption Test Questionnaire can be found through the Society for Human Resource Management.
When It Does Not
Although most jobs require overtime pay, there are a few specific fields and industries that do not. Be sure to check out this list to see if these regulations apply to your business.
There are also certain circumstances and employees that do not require overtime pay:
- Exemptions: Exempt employees must meet specific requirements; they must be paid on a salary basis and cannot earn less than $455 per week.
- Independent Contractors: Workers that sign an agreement and are paid via a 1099 form are not always entitled to overtime pay, daily work breaks and lunch breaks.
- Highly-compensated workers: Any individual that meets certain guidelines, including earning an annual salary of more than $100,000 and working in an office-type setting.
- Travel time to work or worksites, meal periods less than 30 minutes where the employee is relieved from active duties, training outside of an employee’s normal work schedule, voluntary training, and training not directly related to the employee’s current position are not qualified as work time.
- Unless the time worked during that workweek is over 40 hours, overtime pay is not required for weekends, nights, holidays or other days of work under the FLSA. Any extra pay for these hours must be an agreement between the employer and the employee.
It is important to note that exemptions to the FLSA do not apply to blue-collar workers with jobs that require repetitive skill and energy. These individuals must be paid overtime rates when they apply unless the worker receives salary wages.
Avoid missteps regarding independent contractors and exempt workers by remaining informed about laws and regulations regarding your business.
What It Requires
Reporting and requesting overtime is made simple with the use of certain provisions and forms. The following documents are available to assist in the process:
- This Overtime Guidance Policy available from Docstoc provides a sample provision that can be modified to fit the needs of any company and should be supplied to all employees. Using this form can assist employers in avoiding potential overtime disputes.
- An Overtime Authorization Request Form allows employees to request overtime hours from their employer. This form will provide sufficient information to allow the employer to make an informed decision in granting or denying the requested overtime hours.
- Every employer that is subject to the FLSA must post a notice explaining the act in a place where employees can easily read it. A poster detailing the minimum wage, overtime and other wage practices is available through the United States Department of Labor.
For further information, please visit The United States Department of Labor’s Wage and Hour Division.