Employers who find great employees who are willing to do what it takes to get the job done and help propel the business forward should be careful to note how these gung-ho team members perform the necessary tasks. We all want employees who are self-starters and take on responsibilities above and beyond what is expected of them, but if these employees put in more than 40 hours in a week, and are not paid at the overtime rate due them, employers can get in a lot of trouble—both the company and individual managers.
Even if the employee volunteers to work over 40 hours without the required additional time and one-half their regular rates of pay, the employer becomes liable and can be sued in court, paying out thousands of dollars in damages while destroying the reputation of the company.
The overtime rule began in 1938 when the first salary threshold was an annual income of $1,560, and that same year, the Fair Labors Standard Act was signed into law. Over the years the income threshold has changed and so has many other overtime rules, making it cumbersome for business leaders to keep up with the changes and adhere to overtime rules all of the time.
Unfortunately, the confusion and misunderstanding business executives have with these ever-changing rules has caused some businesses to suffer the consequences. Even unintentional breaking of the overtime rules has been very costly even to the point of shutting some businesses down. In order to comply, here are some helpful tips to help you get a grip on the current overtime rules.
Why the Overtime Rule?
It is the Fair Labor Standards Act (FLSA), through the US Department of Labor, that dictates when an employee is put in an overtime pay situation. According to the FLSA, "Unless specifically exempted, employees covered by the Act must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such."
According to the FLSA, this law was created to remedy "labor conditions detrimental to the maintenance of the minimum standards of living necessary for health, efficiency and the general well being of workers." But not every worker is affected by this law. The FLSA applies to those employed within the meaning of the FLSA. In fact, the term "employ," (as written in 1938), means to "suffer or permit to work." Of course, the definition is very broad, but some people who perform services for a company may not fall within this definition. For example, certain interns, externs, trainees, apprentices and graduate assistants may not be considered employees within the meaning of the FLSA. In case this applies to someone at your organization, the FLSA has provided a Fact Sheet for us.
Currently, all employers need to comply with FLSA, which says that certain salaried employees—for example, managers and those with advanced knowledge "in a field of science or learning" such as medicine—are exempt from being able to earn overtime pay if they make:
• More than $455 per week; or
• Over $23,660 a year
Many business owners believe that the overtime rules only apply to hourly workers, but that is not so. Don't let this confuse you or bog you down too much. If you use an accountant or payroll service, they should be up to speed on these overtime rules. If not, you can go here to get a snapshot of how to determine if you should be paying a person you believe is salaried, overtime. This is how the FLSA explains it:
For the salary for workweek exceeding 40 hours: A fixed salary for a regular workweek longer than 40 hours does not discharge FLSA statutory obligations. For example, an employee may be hired to work a 45 hour workweek for a weekly salary of $405. In this instance the regular rate is obtained by dividing the $405 straight-time salary by 45 hours, resulting in a regular rate of $9.00. The employee is then due additional overtime computed by multiplying the 5 overtime hours by one-half the regular rate of pay ($4.50 x 5 = $22.50).
Just when we thought we had a grasp on overtime rules, the DOL proposed a new rule on March 7, 2019, that becomes effective in January 2020:
• Workers who do not earn at least $35,308 a year ($679 a week) would have to be paid overtime, even if they're classified as a manager or professional
• Non-discretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.
• The special rule for highly compensated employees would require workers to earn a total annual compensation of at least $147,414 ($679 of which must be paid weekly on a salary or fee basis).
The Department of Labor intends to propose an update to the salary threshold every four year to ensure that these levels continue to provide useful tests for exemption. Updates would not be automatic and would continue to require notice-and-comment rule-making.
Understand Overtime Rules
Here are three things you can do to ensure you are complying to the overtime rules and staying up to date with any changes the US government may make:
1. Stay in tune with overtime rules. Download this fact sheet and post it on your wall so you stay fresh with any overtime rule changes.
2. As stated in this SHRM piece, you need to anticipate that state or federal wage and hour authorities may audit your organization randomly, pursuant to an enforcement emphasis, or as a result of a complaint from an employee or a competitor. If you are always on guard, you are more apt to want to insure your company is compliant with all overtime rules.
3. Create written policies that communicates to everyone, including employees, the steps being taken to comply with all FLSA overtime rules as well as any state rules that may apply.
Staying ahead of any changes to the overtime rules is also a good practice. You can do this by adding the FLSA and DOL website to your favorites on your computer and refer to it often. It will give you any updates that are coming on the horizon. You can also go here (left-hand side of webpage in red letters), to sign up for email alerts so you always know when changes are coming.
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