Understanding overtime pay regulations and wage laws is important for both employees and employers. This guide provides an overview of key overtime pay rules, calculations, and exemptions to help ensure you are in compliance and being fairly compensated.
What is Overtime Pay?
Overtime pay refers to compensation received for working more than a standard number of hours, which is typically 40 hours per week. Employees who work over 40 hours are entitled to be paid 1.5 times their regular hourly wage for those additional hours worked.
This is known as “time and a half” pay. For example, an employee with a regular wage of $20/hour who works 45 hours in a week would receive:
- 40 hours at regular pay ($20/hour), equaling $800
- 5 hours at overtime pay ($30/hour), equaling $150
- Total pay = $950
Some key things to know about overtime pay:
- It is a legal requirement under the Fair Labor Standards Act (FLSA) for nonexempt employees.
- Overtime pay is based on actual hours worked over 40. Paid leave (vacation, sick days, holidays) does not qualify.
- The overtime rate is 1.5 times the regular rate, not simply 1.5 times the hourly wage. The regular rate factors in things like commissions and bonuses.
Calculating Overtime Pay
Here is the formula to determine the regular rate of pay, which then allows you to calculate overtime owed:
Total weekly compensation ÷ Total hours worked = Regular rate
Once you have the regular rate, use it to calculate overtime pay for hours over 40:
Overtime hours x (Regular rate x 1.5 overtime rate) = Overtime pay
For example:
- Total weekly compensation: $1,000
- Total hours worked: 45
- $1,000 ÷ 45 hours = $22.22 regular rate
- 5 overtime hours x ($22.22 x 1.5) = $166.65 overtime pay
Overtime Pay Exemptions
While most workers are entitled to overtime pay when working over 40 hours, there are some exemptions. Employees who are classified as “exempt” do not qualify for overtime. Some common exempt categories include:
- Executive employees – salaried managers and supervisors
- Administrative employees – office workers performing administrative tasks
- Professional employees – jobs requiring advanced education like lawyers, doctors
- Outside sales employees
- Certain computer-related occupations
To qualify for most exemptions, employees must meet salary threshold and duties tests. Job titles do not determine exempt status – it is based on job duties, salary, and other factors.
Salary Thresholds
The minimum salary required to qualify for exempt status is:
- $684 per week federally ($35,568 per year)
- Higher salary thresholds exist in some states like California and New York
If an employee’s salary falls below this threshold, they are eligible for overtime regardless of duties.
Duties Test
Employees must primarily perform executive, administrative, or professional duties to meet the duties test for exempt status. Requirements vary by category.
For example, to qualify as an exempt executive employee, one must:
- Have authority to make independent decisions on significant matters
- Customarily and regularly direct the work of 2+ other employees
- Have management as the primary component of the job
State and Local Overtime Laws
In addition to federal wage laws, many states and localities have their own overtime pay regulations. These may provide greater protections and higher wages than federal laws.
Some key state differences include:
- Higher salary thresholds – e.g. California requires exempt employees make 2x the state minimum wage
- Lower standard hour thresholds – e.g. Colorado requires overtime at over 12 hours per day rather than 40 per week
- Triple pay – some states like California mandate double or triple overtime rates for excessive hours like over 12 per day
Employers should be aware of any applicable state or local overtime laws in the jurisdictions where they have employees. These laws supersede federal regulations when they are more generous to employees.
Resources on State and Local Standards
- US Department of Labor Wage and Hour Division – summaries of state labor laws
- Minimum Wage Tracker – comparison of state minimums and overtime rules
- State labor department sites – e.g California
Tracking Overtime
Careful and accurate tracking of employee hours is crucial for ensuring proper overtime pay compliance. Employers must keep records of:
- Exact number of hours worked each day, including start and end times
- Total hours worked each workweek
- Regular hourly rate for any week when overtime is worked
- Total wages paid each pay period
- Any deductions made
- Total overtime pay for each overtime week
Employees should also track their own hours worked and overtime to confirm their pay is accurate.
Penalties for Violations
Failing to pay owed overtime wages is illegal. When violations occur, penalties may include:
- Requiring back pay of owed overtime
- Fines up to $1,100 per violation
- Lawsuits and class action cases
- Getting placed on government monitoring or watch lists
Avoid overtime problems by being familiar with the applicable laws and ensuring accurate time tracking and rate calculations. Both employers and employees should understand their rights and obligations.
