Overtime Pay—When, Where and How

With Thanksgiving upon us and the Christmas Holiday season right around the corner, it is a good idea to review guidelines regarding the proper payment of overtime. I will only be discussing federal regulations and not specific states. Most states follow the federal government regulations, but a few states have wage and hour laws that are more comprehensive than federal.

All overtime regulations are covered under the Fair Labor Standards Act (FLSA) and enforced by the Wage and Hour division of the Department of Labor. Before I cover issues related to overtime, let me just briefly list and summarize what the FLSA does and does not cover.

The FLSA does cover:

• Paying minimum wage and appropriate overtime.
• Equal pay for men and women, which is covered under the Equal Pay Act.
• Limitations and restrictions on child labor

The FLSA does not cover:

• Breaks, with some exceptions. Although some states require states, there are no federal government regulations that require an employer to provide breaks. The exceptions are very specific. Under the Affordable Care Act, employers are required to provide a reasonable break time for an employee to express breast milk for her nursing child for one year after the child’s birth. This break time can be an unpaid. Rest or coffee breaks that are 20 minutes or less in duration must be paid, but companies are not required to provide a break. But, if the break is provided for all employees, it must be paid. Lunch breaks are also not required under federal statute.
• Holiday, vacation, sick leave or weekend pay. A company is not required to provide paid holidays, vacations or sick leave during a calendar year. Whether to provide paid or unpaid holidays, vacation or sick leave is totally up to the discretion of the employer. If an employee works on a weekend day, an employer is not required to pay extra pay for hours worked, unless those hours exceed the 40 hour rule.
• Raises are not covered under the Act and employers have full discretion on when and how an employee may receive a raise. The only requirement is the minimum wage on the base hourly rate.

Okay, with that out of the way, let’s focus on the overtime rules that many business owners and managers will face over the holiday season. Again, the rules I will discuss are federal and not state, so feel free to contact me if you have questions about your state. The Act covers overtime for hours worked in excess of 40 hours in a workweek at a rate not less than time and one-half the employee’s regular rate of pay. There is no limit on the number of hours an employee aged 16 years or older may work in any workweek. (My record in a previous position was 84½ in a week and 151 in a two week period) The Act does not require overtime pay for work on Saturdays, Sundays, holidays or other regular days of rest.

The workweek does not have to be the same for all employees, but is a fixed and regularly recurring period of 168 hours—seven consecutive 24 hour periods. The workweek does not have to coincide with the calendar week, but may begin on any day and at any hour of the day. The employer has full discretion to establish the workweek, but care should be taken that this discretion is not being used to intentionally discriminate against an employee in a protected work group.

The regular rate of pay cannot be less than minimum wage and overtime is calculated on this regular rate of pay. Payments for expenses, premium payments for working overtime, discretionary bonuses, payments in the nature of gifts and payments for occasional periods when no work is performed due to vacation, holidays or illness ARE NOT required to be included in regular pay.

For example: Joe works 8 hours each day Monday through Wednesday. He has a paid holiday for Thanksgiving (discretion of the employer), but is called in to work Thanksgiving for 5 hours. He then works 8 hours on Friday. The correct calculation of payment for Joe for the week is 8+8+8+5+8, which is 37 hours at regular pay and 8 hours of regular pay for the holiday. You will notice the 8 hours paid for the holiday pay IS NOT included in total hours actually worked for calculations of overtime. If Joe had worked 10 hours on Thanksgiving, he worked 40 hours at regular pay, 2 hours overtime to be paid at time and one-half and 8 hours of regular pay for the holiday.

Typical Problems
A lump sum paid for work performed during overtime hours without regard to the number of overtime hours worked DOES NOT qualify as an overtime premium even if the lump sum payment is greater or equal to the regular rate of pay. The lump sum must equal or exceed the proper calculation of overtime based on actual hours worked.

If a non-exempt employee is paid a fixed salary for a regular workweek longer than 40 hours, the obligations under the FLSA still apply. For example, an employee is paid $405 per week for a 45 hour week. The proper calculation of hourly rate would be $9 an hour ($405 divided by 45 hours) and the employee would be due an additional $22.50 per week in overtime pay. ($4.50 an hour x 5 hours)

No agreement can be in place between an employer and employee that waives the right to be paid overtime. An announcement or policy by an employer that no overtime work will be permitted or an employee must receive prior permission before overtime work is permitted DOES NOT forfeit the right of the employee to be paid for hours worked over the 40 hours in a workweek. The instance might be a discipline issue, but non-payment as punishment IS NOT allowed under the Act.

Here are a couple of very important side notes about hours worked in general. An employer CANNOT automatically deduct time for lunch periods. The rare exception is when a line is shut down in a plant setting at a regular scheduled time. If an employee works during a lunch break, the time must be paid. For example; an employee grabs their lunch and sits down at their desk to work while eating. That is not a proper break and must be paid. A driver employee stops at McDonald’s to grab lunch and eats while driving to the next appointment. That is not a proper break and must be paid.

The basic rule of thumb, unless covered under a Collective Bargaining Agreement, is to pay employees for ALL hours worked and if the actual hours worked exceeds 40 hours, pay overtime.

Now, time for some turkey, football and an afternoon nap.

To Your Success

Richard Davis, SPHR
McClain Group, LLC
Twitter: @pipability


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