Employee Overtime Rules Getting An Overhaul
Earlier this year, President Obama issued an executive order to revise federal labor regulations, which would make millions more U.S. workers eligible for overtime pay.
Is Overtime Really A “Simple” Idea?
“Overtime is a pretty simple idea,” Mr. Obama said. “If you have to work more, you should get paid more.”
We have to disagree with the president there. Simple isn’t the word one would use to describe the process of determining how much employees get paid when they exceed the standard 40-hour work week–or if they should be compensated extra at all.
The Basics Of Employee Overtime Rules
According to the Fair Labor Standards Act (FLSA), created in 1938 during the Great Depression, and amended several times by Congress since, qualified employees are entitled to overtime for every hour more than 40 they work in a given week at a rate of time and ½ of their regular pay rate.
To qualify for overtime, an employee must both:
- Earn no more than $455/week
- Meet certain standards regarding their job duties.
Employees who do not meet those standards are considered “exempt” employees–meaning, business are exempt from having to pay them overtime.
Now here’s where things get tricky…what exactly are those “certain standards” anyway?
Can someone earning more than $455 weekly still qualify?
Are all businesses even required to pay overtime?
OK, let’s dig a little deeper.
Where Employee Overtime Rules Get Tricky
No, not every employee who earns $455 or more per week is automatically exempt from overtime. The employee must also be performing certain types of work — generally, that requires managerial duties, professional-level education or expertise, or requires the employee to make capable and competent business decisions.
Let’s look at the employee overtime rules for different types of employees.
An administrative employee must perform office work directly related to the management or business operations of the employer or its customers, and must exercise discretion and independent judgment.
An executive employee’s primary duty must be managing the employer’s overall firm or a division or department of that enterprise; the employee must regularly supervise at least two full-time employees and must have the authority to hire and fire, or have significant input into HR decisions.
A professional employee’s primary duty must either be performing work that requires advanced knowledge in the field of science or learning, of a type that is usually attained through an advanced course of study; or performing work that requires invention, imagination, originality, or talent in a recognized creative or artistic field. For more specific requirements, read the Department of Labor’s Fact Sheet on qualities of overtime-exempt employees.
Many workers (and lawyers) are successfully suing, and winning overtime lawsuits, because of the increased automation and standardization in today’s workplace. Even highly-paid employees are claiming that they are not using “independent judgment” (to use the FLSA’s terminology) when working, and reaping huge rewards.
Almost all businesses must comply with overtime laws. In general, your business is covered by the FLSA if you have $500,000 or more in annual sales. If your business is smaller, you must pay overtime if you engage in “interstate commerce” — which includes making phone calls to or from another state, sending mail out of state, or handling goods that have come from, or will go to, another state. Even if your business is not covered by the FLSA, you’ll likely to still be required to pay overtime under local state labor laws.
Be sure to protect yourself and have a professional solution at hand.
Consequences For Violators
Violators of overtime law are frequently required to issue back pay to employees and can also be fined by the government. Accuracy in timekeeping and compliance with federal law may sound simple, but in fact, it’s quite complex.
If you’re daunted by the prospect of choosing a suitable time & labor tracking system, much less use one – you are not alone! There are many good systems in the marketplace that can process overtime, quantify the cost and display it in meaningful reports.
With a myriad of companies offering time & labor software, focus on one which will have the capability to highlight potential overtime situations. Having knowledge about any overtime occurring is valuable, knowing about these situations before they happen is priceless.