The Fair Labor Standards Act (FLSA) is a federal law governing, among other things, overtime pay in the United States. FLSA overtime laws state that overtime is required for non-exempt employees, ensuring that eligible employees get paid for their extra hours worked.
Maintaining payroll compliance means complying with overtime laws, no matter what. It’s a must, not a maybe.
Here, I break down each overtime law that employers throughout the United States have to follow in plain and simple language to help your business stay compliant.
1. Only Non-Exempt Employees Can Earn Overtime
The FLSA requires employers to pay non-exempt employees overtime. In the lens of the FLSA, non-exempt means anyone who is not exempt from FLSA overtime laws.
To start, let’s break down what that means. According to the FLSA, a non-exempt employee must not meet one of its exemption tests. These exemptions are for executives, administrative employees, learned professionals, computer professionals, and outside sales representatives meeting specific salary standards.
Currently, employees falling within one of these exempt categories must generally have a salary of at least $684 per week or $27.63 per hour.
However, the U.S. Department of Labor has proposed an increase to this minimum salary threshold—to $1,059 per week, to be exact—which could place more employees in the non-exempt category than before.
If the rule comes to fruition, employers will need to ensure that they classify or reclassify each employee properly. Not paying non-exempt employees overtime could come with strong penalties, like paying back overtime wages, civil penalties of $1,000 per occurrence, and up to $10,000 in fines for employers who wilfully violate FLSA law.
The most important takeaway here is that overtime pay is the law when you’re paying non-exempt employees. Additionally, compensatory time and other pay alternatives to avoid paying actual overtime won’t satisfy FLSA requirements.
2. Workers Earn Overtime After 40 Hours In a Workweek
Now, what constitutes a workweek in the eyes of the FLSA for overtime purposes?
In short, non-exempt employees working for more than 40 hours in a workweek are eligible for overtime for those hours worked past 40. As an example, a person working 45 hours in one workweek gets five hours of overtime and 40 hours of regular pay.
The FLSA doesn’t tell you what days count as a workweek, but it does define the guidelines for what counts as a workweek:
“A workweek is a period of 168 hours during 7 consecutive 24-hour periods. It may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of minimum wage and overtime payment, each workweek stands alone; there can be no averaging of 2 or more workweeks.”
Put more simply, a workweek includes seven consecutive days. You can make those seven days run Sunday through Saturday, Monday through Sunday, or even Wednesday through Tuesday.
Regardless of what you choose, as long as it’s seven consecutive days, it works. And, if your employee works more than 40 hours during those seven days, they’re eligible for overtime for the extra hours.
Side note: Paid time off and overtime don’t work the same way. If your employee uses more than 40 hours of PTO during a workweek, an employer isn’t required to pay them overtime for hours above 40, although they can choose to do so.
3. Overtime Pay Rate Is At Least 1.5x the Regular Rate
The minimum overtime rate to satisfy FLSA requirements is 1.5 times an employer’s regular rate, better known as time-and-a-half. You calculate this by taking the regular rate and multiplying it by 1.5.
So, regular hours up to 40 get paid a regular rate, while hours over 40 get paid the 1.5x rate.
Example:
Kyle is a non-exempt worker who worked 48 hours during the company’s last workweek. He gets paid $20 per hour, making his overtime rate $30 ($20 x 1.5). Kyle’s regular rate for that week, then, is $800 ($20 x 40 hours), and his overtime rate is $240 ($30 x 8 hours), making his total pay for that week $1,040 ($800 + $240).
This rate is what’s required by the FLSA, but employers can choose to pay more than this for overtime. If you want to reward your employees who pick up extra hours with double time—2x their regular pay—you can do that, but you can’t dip below the 1.5x overtime rate.
4. Employers Can Calculate Overtime Differently for Fluctuating Workweeks
Some employees have varied work schedules, which can affect how they earn overtime. For example, an employee might have an alternate week schedule where they work six days one week and only three the following.
Employers sometimes use a special calculation method for these employees, giving them a set weekly salary that doesn’t change, even on their weeks with fewer hours. The FLSA makes overtime provisions for this type of schedule, which it calls a fluctuating workweek.
Employers using this method would calculate the employee’s regular rate of pay by adding the employee’s salary, bonuses, and commissions together and dividing it by the number of hours they work during a workweek. Then, they base overtime pay on that regular rate.
Let’s look at an example:
Erin is a non-exempt employee with a fluctuating schedule. Her employer pays her a set salary of $800 a week. Last week, she worked 45 hours; this week, she worked 20.
Her regular rate for last week—the week she earned overtime—is $17.78 per hour ($800 / 45 hours). She’s already making $800 for her 45 hours, but her employer still needs to add overtime for those five extra hours.
So, for Erin’s 40 hours, she earns $17.78 x 40, or $711.20. But for her five overtime hours, she makes $26.67 per hour, for a total of $133.35 ($26.67 x 5 hours). Erin gets a total pay of $844.55 for the week she earned overtime ($711.20 + $133.35).
5. Shift Differentials Must Be Included in Overtime Calculations
Shift differential pay gives employees additional compensation when they work outside of their typical hours or perform duties that aren’t usually on their list of responsibilities. Any pay given as a shift differential needs to be included in your overtime calculations for an employee.
More specifically, you’ll need to include the shift differential rate of pay as regular pay for an employee to determine their overtime.
Example:
Say Tim gets paid $25 as his regular rate but earns a shift differential of $2 per hour when he picks up a weekend shift.
Tim’s schedule for last week: Monday 8-6, Tuesday 8-4, Wednesday 10-6, Friday 10-8, Saturday 9-5. Tim has 36 hours paid at his regular rate ($25) and 8 hours paid at his shift differential rate ($27). He also worked 44 hours total, so he is owed four hours of overtime pay.
Tim’s regular hours earn him $900 ($25 x 36 hours), and he earns $216 from his shift differential hours ($27 x 8 hours), for a total of $1,116 ($900 + $216).
Now, we need to divide his total compensation of $1,116 by the number of hours he worked, 44, to get his regular rate for the purpose of calculating overtime. $1,116 / 44 = $25.36. Overtime is based on this rate, which comes to $38.04 ($25.36 x 1.5).
Therefore, Tim gets 40 hours paid at the regular rate we just calculated ($25.36 x 40 = $1,014.40) and 4 hours paid at the overtime rate ($38.04 x 4 = $152.16) for a total week’s pay of $1,166.56 ($1,014.40 + $152.16).
6. Forced Overtime Is Legal in Most Cases
Forced overtime, also known as mandatory overtime, is when an employer requires an hourly employee to work more than 40 hours and get paid overtime for their extra hours. This could happen when an employer needs extra work done, but no employees are willing to pick up an overtime shift, for example.
Yes, it’s a legal practice. According to the FLSA, there are no restrictions on the number of hours an employee can work as long as they get paid properly for overtime. There are a few situations when employers can’t force overtime, like if an employee is on family or emergency leave or it breaks the terms of the employer-employee contract.
There may also be some negative implications if you use it regularly, like decreased employee happiness and increased stress and fatigue. It’s important to consider the pros and cons and whether it’s really necessary before making overtime mandatory, even if it’s just a one-time thing.
7. Some States Have Overtime Laws That Differ from Federal Laws
The FLSA is federal, but states can and do make their own overtime laws that differ from those federal regulations. Generally, state laws make overtime better for employees, as they enhance federal law.
For example, California allows employees to earn 1.5x their regular pay after working for eight hours in a single day and 2x their regular pay if they work any hours past 12 hours in one day. Also, if a California employee works seven consecutive days, they are entitled to 1.5x pay for the first eight hours worked and 2x pay for hours over eight.
Kentucky also has a similar 7th-day overtime requirement, allowing employees who work seven days consecutively to get paid 1.5x their regular rate for all hours worked that day.
Generally, state law takes priority over federal law if the state’s law meets or has better provisions for an employee than federal law.
For example, Arizona provides the same requirements as the FLSA regarding paying overtime past 40 hours, but Minnesota only requires overtime pay past 48 hours. It’s generally recommended to always follow the law that provides your employees with the greatest amount of benefits and protection
The U.S. Department of Labor’s Wage and Hour Division offers a list of minimum wage and overtime laws by state to reference for more information. You can also check your state’s labor office for details on overtime law.
You Can Make Your Own Policy — But Make It Better Than the Law
You absolutely can make your own overtime policy so long as it meets the requirements for the FLSA and your state. If you want to pay your employees double time for all overtime or pay overtime after 38 hours instead of 40, that’s up to you. If it’s better than what the law requires, it’s likely okay to implement.
Just make sure your calculations are right. You don’t want to end up paying regular wages for hours that were supposed to be earning an overtime rate.
If you haven’t already, implement payroll software into your processes. It can calculate each employee’s regular and overtime hours and subsequent pay rates, ensuring they get paid properly with each check.
