What Are New Overtime Regulations?

How Overtime is Calculated and Paid
How Overtime is Calculated and Paid. Jan Stromme/Getty Images

UPDATE to Overtime Rules for Exempt Employees - May 2016

On May 18, 2016, President Obama announced a change in how overtime affects exempt employees. This change affects salaried employees who have a "White Collar Exemption." 

Salaried employees are typically exempt from overtime if their weekly income is over a specific amount. That minimum income has been increased from $455 a week to $913 a week, effective December 1, 2016.

This means that salaried employees earning less than $913 a week must receive overtime pay for hours worked over 40 hours in a week. 

This change affects executive, administrative, and professional employees, who are classified as exempt for the purpose of overtime. The Department of Labor will review compensation levels for these workers every three years and update the annual compensation requirement. 

Before the change, a salaried employee earning less than $455 a week (​$23,660 annually) would have been eligible for overtime. After December 1, 2016, more salaried employees will be eligible for overtime. Now, employees earning less than $913 a week ($47,476) will be eligible for overtime.

This ruling will require employers to track weekly hours for more salaried employees and make decisions on whether to restrict work weeks of these employees, pay overtime, or make other adjustments in workload.

 

More information in this article about the New Overtime Rules for Exempt Employees. Some of this also applies to non-exempt employees. 

What Is Overtime? 

If an employee works more than a specified number of hours in a week, the additional hours are called overtime.  Pay for any hours worked as overtime are paid at a higher rate than regular hours.

 

Overtime pay is the additional pay rate paid to hourly employees who work more than a specified number of hours in a week.  

Paying Employees More Than Minimum Required

This article discusses the minimums for calculating and paying overtime, as required by federal and state laws. Your business must comply with this minimums, but you may decide to pay employees at a higher rate, and for overtime starting at lower hours per week. 

Some employers, for example, pay "double time" (twice the normal hourly rate) for holidays. Overtime pay is not required for night, holiday, or weekend work; these rates are determined by the employer or by union contracts.

Federal Employee Pay Regulations

The Wage and Hour Division of the U.S. Department of Labor regulates overtime and other pay provisions through the Fair Labor Standards Act. In addition to overtime provisions, the Act regulates child labor and minimum wage activities of U.S. employers.

The Fair Labor Standards Act requires that hourly employees who work more than 40 hours in a workweek must be paid at a higher rate for the overtime hours, at a minimum of 1 1/2 times the employee's regular pay rate.

State Overtime Regulations

Some states have regulations for overtime and other labor laws that exceed those of the federal government. In this case, the more strict regulation must be met. Check with your state's labor department to review state labor laws, or check with your employment attorney.

How Overtime is Calculated 

Here's how overtime pay works: 

Overtime pay is the amount of overtime paid to each employee in a pay period. Overtime pay is calculated:  Hourly pay rate x 1.5 x overtime hours worked.

Here is an example of total pay for an employee who worked 42 hours in a workweek:

  • Regular pay rate x 40 hours = Regular pay, plus
  • Regular pay rate x 1.5 x 2 hours = Overtime pay, equals
  • Total pay for the week.

A more detailed example: 

An employee works 50 hours in a week. Her normal pay rate is $15 an hour. So she is paid $600 for her 40 hours at $15 an hour, plus $225 for her additional 10 hours of overtime (at $15 x 1.5 x 10 = $225). Her total pay for the week would be $825. 

Employees Exempt from Overtime

Because of the nature of their work, some employees are considered to be exempt from receiving overtime pay. In order to be classified as exempt, an employee must have specific types of job duties.

The Fair Labor Standards Act (FLSA) recognizes executive, administrative, professional, outside sales, and some computer employees as exempt. Exempt classification is on a case-by-case basis and is not based on the job title of the employee.

Exempt employees are paid a salary, based on an annual rate, at 2080 hours of work per year. Holidays and time off are not deducted from this salary.

As of 2004, exempt salaried employees are considered to be exempt from overtime if their weekly pay is over $455 per week, or $23,660 annually (52 weeks).

Record keeping of Overtime

The FLSA requires employers to keep records of payments to employees, including overtime pay. In the case of an audit, an employer mus be able to prove payment of overtime that meets FLSA requirements.

Continue Reading...