Overtime Compliance

Overtime. It should be simple, but it’s not.

Federal overtime regulations state that employees must be paid an overtime premium of an additional one half of their regular rate of pay for all hours over 40 in a seven day workweek. Some states have stricter overtime regulations which include paying overtime after 8, 10, or 12 hours in a single day.

What’s so complicated about that you ask?

For starters, several types of employees are exempt from overtime laws. These include some types of truck drivers, agricultural workers, salesmen, commissioned employees, executives, computer professionals, teachers and many more.  If you are not paying a certain employee overtime make sure that you know exactly why.  Don’t assume that because someone has a certain type of job or is paid in a certain way that that makes them exempt from overtime requirements.

Also make sure that you’re including all necessary pay  in the regular rate calculation.  If an employee is paid $10 per hour, works 45 hours one week  and receives a $50 bonus in that week for good attendance, his regular rate of pay is NOT $10 but rather $11.11 because (($10*45 hours)+$50 bonus)/45 hours = $11.11 per hour. This idea applies to many types of “extra” pay including non-discretionary bonuses and commissions. See our Tip of the Week on including bonuses in the overtime rate.

Another common misconception is the idea that paying someone a salary or a piece rate or a day rate means that they are exempt from overtime.  On the contrary – what exempts a person from overtime is their job duties – not their type of pay.

And then there are deductions. In order to make deductions (for tools, uniforms, damages, etc) in a week where an employee works overtime hours you must have an express or implied agreement about the items for which money will be deducted and at what cost prior to the work being performed. If the agreement is properly in place the deduction can only be made from the first 40 hours of work – not any of the overtime hours.

Common overtime violations include:

  •  Not counting all hours paid toward the total for overtime purposes. Example: Bob is paid 45 hours for regular work and 10 hours for drive time. You only pay Bob for 5 overtime hours. He must be paid for 15 overtime hours.
  • Making a contract (verbal or written) with your employees where they state that they do not want to be paid overtime. Employees cannot waive their rights to overtime compensation.
  • Paying your tipped employees an overtime premium based on their cash wage. Overtime is always based on the regular rate and the regular rate for tipped employees is minimum wage (assuming there are no other service charges, non-discretionary bonuses, etc.)
  • Paying employees banked hours or “comp time” or letting them take those hours as vacation at straight time. Only allowed for some employees of public agencies, no private entities. See our Tip of the Week on comp time. 
  • Paying your employees overtime after 80 in a biweekly period (every two weeks) or after 88 in a semi-monthly period (twice per month).  Your frequency of payment has no effect on the overtime regulations. It’s after 40 hours in a seven day workweek.
  • Changing all of your employees to independent contractors and then stating that since they’re not employees you don’t have to pay them overtime. Not a smart idea unless they are actually bona fide independent contractors. The Department of Labor will first change them back to employees and then charge you all of the overtime at the higher contractor rate you were paying them. Ouch. See our Tip of the Week on independent contractors for more information on this issue.

All of this is really the tip of the iceberg when it comes to overtime. Overtime violations result in the largest amounts owed in back wages. Give us a call if you think you need help with overtime.

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.