Running a business poses many unique challenges, one of which is computing employee pay. How do you manage part-time, full-time, salaried, hourly, independent contractors, and even more variations on pay schemes? One of the questions we see come up over and over again is from business owners who have quite a few salaried employees. Do salaried employees have a legal claim to overtime pay?
Where Do Overtime Requirements Come From?
Overtime requirements come from the Fair Labor Standards Act (FLSA), which is enforced in the U.S. Department of Labor. The FLSA covers minimum wage, hours worked, recordkeeping, federal wage garnishments, direct care workers, child labor laws, as well as overtime.
The Fair Labor Standards Act was originally published in 1938 as a pillar of New Deal legislation. It created a federally mandated minimum wage, “time-and-a-half” overtime pay, as instilling child labor laws. This original act was amended in 1947, 1949, 1955, 1961, 1963,1966, 1967, 1974, 1977, 1983, 1985, 1986. 1989, 1996, 2004, 2007, 2010, and 2016. The FLSA represents nearly the full body of federal employment law.
Difference In Federal Labor Laws, State Laws, And Company Policy
The FLSA is designed to act as an absolute minimum for what employers are obligated to do in the United States. State law and company policy sometimes say something different than the FLSA. However, those differences have to be improvements over the federal minimum.
For example, the federal minimum wage is currently $7.25. However, Florida state minimum wage is calculated based on annual cost of living calculations. As of January 1st, 2020, Florida state minimum wage is $8.56 per hour, $5.54 per hour for tipped employees.
A business that operates in Florida must pay their employees the Florida state rate, unless they are exempt for some reason.
FLSA Overtime
Employees covered by the FLSA must receive overtime pay for hours worked over 40 hours in a work week. The rate for overtime must be at least “time-and-a-half.”
This calculation is fairly simple. Take the employee’s hourly rate and multiply by 1.5. Take someone receiving the federally mandated minimum wage of $7.25. 7.25 times 1.5 is 10.875. So for every hour worked after forty hours a week, the employee would earn $10.875 per hour rather than $7.25.
Employers do not have to pay overtime for work on Saturdays, Sundays, or holidays. That is, unless an employee’s weekly work hours exceed the 40 hours per week during those times.
The Exceptions
However, there are exceptions to who earns overtime. There are some new rules about which salaried employees qualify for overtime exemption. Generally, most salaried employees are exempt from FLSA overtime rules. This means that for the most part, employers do not have to pay salaried employees overtime. However, the employer must prove a few things about the worker.
- The worker is paid an agreed upon, fixed salary that does not change due to changes in quality or quantity of work; and,
- Employees in question must earn at least $684 per week , which totals to an annual salary of $35,568 (effective January 1, 2020); and,
- The worker acts in an executive, administrative, or professional capacity. Essentially, they are a “white collar” worker.
Learn more about specific exemptions here.