Overtime Pay Laws for Employers

Federal overtime pay laws require employers to pay nonexempt employees overtime for hours worked in excess of 40 hours in a workweek. The overtime rate is one and one-half times the employee's regular rate, except in a few very limited situations. Exceptions exist to the general overtime pay rule for certain occupations. Many states have laws relating to overtime, and if your state's law is more demanding than federal overtime law, you must follow the state law.

Federal wage and hour laws require employers to pay covered employees one and one-half times their regular rate for any hours worked in excess of 40 hours in a workweek.

Complying with this requirement may sound deceptively simple. However, in order to determine when you are required to pay an employ overtime, you must understand what constitutes a workweek.

In most people's minds the workweek begins on Monday morning and ends on Friday night. However, this is not always the case for purposes of the overtime pay requirements.

By law, a workweek is defined as any seven, consecutive 24-hour period and begins at any time on any day. Therefore, your employees' workweek, for pay purposes, may start at noon on Wednesday and end at 11:59 a.m. on the following Wednesday, because a workweek can be any fixed and recurring period of 168 hours (seven days at 24 hours each).

What exactly is so significant about understanding when a workweek begins and ends? Most importantly, understanding the workweek concept is crucial in payroll calculations, including:

• calculating how many hours an employee worked in a workweek
• calculating the regular rate of an employee

However, before you begin calculating overtime pay for your employees, you should consider the following:

• determine which of your workers are subject to overtime rules
• whether you may pay overtime wages other than time and one-half (there is a small group of businesses that can use other methods)

Keep in mind too, that a state may have overtime pay laws, and in some states the rules are different and/or more stringent than the federal law.

Who is Subject to the Overtime Pay Rules?

The overtime rules apply to all nonexempt employees. A common mistake employers make is to presume that the overtime rules don't apply to salaried employees. In actuality, the opposite is true.

The overtime pay rules apply to all salaried employees, unless they fall into one of the exempt categories.

There are some other occupations that don't have to receive overtime pay under the federal Fair Labor Standards Act (FLSA) (but may be covered by other provisions such as minimum wage, child labor or equal pay). They include:

• employees of motor carriers subject to regulation by the Secretary of Transportation
• employees of railroads, express companies, and water carriers subject to part I of the Interstate Commerce Act
• employees of air carriers subject to Title II of the Railway Labor Act
• outside buyers of poultry and dairy products
• seamen
• announcers, news editors, and chief engineers of radio or television stations in small communities
• salesmen, partsmen, or mechanics employed by automobile, truck, or farm implement dealers, and salesmen employed by trailer, boat, or aircraft dealers
• drivers and drivers' helpers who make local deliveries and are paid on a trip-rate or similar basis pursuant to a plan which was approved by the government
• agricultural employees
• agricultural employees who incidentally do livestock auction work, if they receive the statutory minimum wage for time spent in the auction work
• employees of nonprofit agricultural irrigation systems
• workers employed by country elevators which are located within the area of production and have no more than five employees
• employees who process maple sap into syrup or sugar, other than refined sugar
• employees engaged in the local transportation of fruits or vegetables or of workers employed or to be employed in the harvesting of fruits or vegetables
• taxicab drivers
• law enforcement and fire fighting personnel working for agencies employing fewer than five such persons
• household domestic service employees who reside in the household
• employees of nonprofit educational institutions who, with their spouse, serve as resident houseparents to children who are orphans or one of whose natural parents are deceased, if the houseparents together earn at least a minimum amount annually
• employees of motion picture theaters
• workers employed in forestry or logging operations by an employer who has no more than eight employees doing such work

There are also partial exemptions for certain types of employees if certain criteria are met.

Partial exemptions from the overtime pay rules exist for the following employees:

• commission employees of retail or service establishments: commissions qualify as overtime pay if the employee's regular rate exceeds one and one-half times his statutory minimum rate and if more than one-half of the employee's compensation represents commissions
• nursing home or hospital employees: the employees may be paid overtime at one and one-half times their regular rates on the basis of a 14-day period, rather than the usual seven-day workweek, if they agreed to the arrangement prior to performance of the work and if they receive overtime pay for hours worked in excess of eight daily and in excess of 80 during the period
• employees of wholesale petroleum distributors
• employees working under a union contract with certain provisions
• fire fighters and law enforcement personnel including prison security personnel
• employees processing and handling leaf tobacco
• employees who gin cotton for market in counties where cotton is grown in commercial quantities
• employees who process sugar beets, sugar beet molasses, or sugar cane into sugar (other than refined sugar) or syrup
• cotton and sugar service employees
• private entities that operate concessions in national parks, in national forests, or on land in the National Wildlife Refuge System
• employees receiving remedial education

If your nonexempt employees do not meet any of these full or partial exemptions, then you must pay them overtime pay for any hours in excess of 40 hours that they work in a workweek.

State Overtime Pay Laws

States have laws pertaining to overtime and the general rules and exemptions can differ from the federal overtime pay rules.

If your state's law is more demanding than federal law. If your state's law is more inclusive or more generous regarding overtime pay, you must follow that law, even though you will surpass the minimum compliance requirements of the federal law.

If your state's law is less demanding than federal law. If the federal law is more demanding than your state's law, and you are subject to the federal law, you must meet the federal minimum, even though your state requires less to be in compliance.

Consult our state map for your state's overtime pay laws.

Exceptions to the Time and One-Half Requirement

Under federal law, there are four exceptions to the rule that overtime must be paid on the basis of one and one-half times an employee's regular rate. The first three exceptions require an agreement between the employer and the employee before overtime work is performed; no agreement is necessary for the fourth.

• Piece workers may be paid one and one-half times their piece rates for overtime work.
• Employees working at two or more hourly rates (for doing two different jobs within one business) may be paid one and one-half times the hourly rate applicable during overtime hours.
• Overtime may be paid at one and one-half times a basic rate established by the agreement for overtime-pay purposes, provided it is in accord with administrative regulations.
• Employees of wholesale petroleum distributors may be paid one and one-half times the statutory minimum rate for part of their overtime work.

These exceptions are limited and chances are, most of your employees will not fall into any of these groups. In that case, the general overtime pay rules apply.