What You Should Know About Overtime Pay

Dealing with employee overtime can be one of the most confusing aspects of small business personnel and payroll management. And the stakes are high. Failure to pay required overtime to employees who qualify can result in legal judgments and fees of tens or even hundreds of thousands of dollars against a small business.

But you also don’t want to shell out more in overtime wages to your employees than you are legally required to pay. To walk the fine line between paying too much and not enough in overtime wages, you need to understand the specific overtime pay requirements as defined by the Fair Labor Standards Act.

First enacted in 1938, FLSA includes minimum wage, overtime pay, and child labor provisions that are designed to provide protections for all workers in the United States. With regard to overtime pay, FLSA requires that covered employees be paid at an overtime rate of one and one-half times their regular rate of pay for every hour over 40 that they work in a workweek.

There are certain kinds of employees, however, to whom you are not legally required to pay overtime wages. They are referred to as “exempt employees,” and they are not entitled to the minimum wage and overtime protections of FLSA. (“Nonexempt” employees, meanwhile, are entitled to these protections.) According to FLSA sections 13(a)(1) and 13(a)(17), exempt employees include bona fide executives and administrative, professional, and outside sales employees as well as certain employees in computer-related occupations.

To be considered exempt, an employee generally must be paid at least $455 per week on a salary basis and perform certain types of work. This includes tasks that

• Are directly related to the management of the business or the general business operations
• Require specialized academic training for entry into a professional field
• Include making sales away from the physical location of the business
• Are within what would be recognized as a field of artistic or creative endeavor

In addition, hourly employees who perform certain types of work in the computer field are considered exempt if they are paid at least $27.63 per hour. It’s important to note that exemptions are based on the specific job duties performed and compensation received, not on job titles.

One common misconception among small business owners is that they or their managers must approve overtime hours for nonexempt employees to be paid overtime wages. This isn’t the case. If an employee who meets the requirements of nonexemption works more than 40 hours in a given week, he or she must be paid overtime wages.

This includes what is sometimes referred to as “off hours” work, such as training sessions, time spent coming in to work early to set up for a meeting, or time spent filling in for absent employees beyond an employee’s regular shift. Also, nonexempt employees are not allowed to waive their overtime pay rights. Legally, you must pay them overtime wages for any overtime hours they work.

So how much is too much money to spend on overtime? Every company is different, so this exact amount will vary from one business to the next. The best way for any business to keep overtime costs down is to monitor the number of hours worked each week by nonexempt employees and carefully plan their schedules so that the number of overtime hours required to perform their jobs is kept to a minimum.

By Don Sadler