Getting a Grip on Overtime Rules

As an employer, finding great employees who are willing to do what it takes to get the job done and help propel the business forward can be difficult. As such, you would want to pay special attention to 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 to them, employers can get in a lot of trouble. And this includes both the company and individual managers.

Even if the employee volunteers to work over 40 hours without the required additional time and a half pay, the employer becomes liable and can be sued in court. If found guilty, they can be out thousands of dollars in damages while destroying the reputation of the company.

Unfortunately, the confusion and misunderstanding business executives have with these ever-changing rules has caused some businesses to suffer the consequences. Even the unintentional flouting of overtime rules has been very costly to the point of shutting some businesses down. To ensure compliance, here are some helpful tips to help you get a grip on the current overtime rules.

Why the Overtime Rule?

The Fair Labor Standards Act (FLSA) dictates when an employee should receive his/her overtime pay. 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 harmful labor conditions which can worsen the standard of living of employees. Not protecting them from such detrimental conditions can affect their health, efficiency and general well-being, which will, in turn, have a negative impact on the company. 

However, not every worker is affected by this law as the FLSA only applies to those who meet the criteria stated by the act. 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

Determining Overtime

Many business owners believe that the overtime rules only apply to hourly workers, but that is not so. Do not 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. This is how the FLSA explains it:

For the salary for a 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).

Another important thing to note is that the Department of Labor recently proposed a new rule on March 7, 2019, that came into effect 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 years to ensure that these levels continue to provide reasonable cases of exemption. Updates would not be automatic and would continue to require notice-and-comment rule making.

Understanding Overtime Rules

Here are three things you can do to ensure you are complying with the overtime rules and staying up to date with any changes the US government may make:

1. Stay in tune with overtime rules so that you can stay abreast with any overtime rule changes.

2. As stated by SHRM, you need to anticipate that state or federal wage and hour authorities may audit your organization randomly. This can be pursuant to an enforcement emphasis, or as a result of a complaint from an employee or a competitor. If you remain vigilant, you will be more prepared to ensure your company is compliant with all the overtime rules.
3. Create written policies that communicate to everyone, including employees, the steps being taken to comply with all FLSA overtime rules as well as any state rules that may apply. Including these in the onboarding documents after hiring them can be useful to ensure that they are well aware of the regulations the company has to adhere to. 

At Workstream, we help you send your onboarding documents automatically to your new hires as soon as they are hired. These documents are sent through text and alerts will also be automated to ensure that the paperwork is complete before they officially begin work. Through this, you save the hassle of chasing them for the signed documents necessary for their onboarding. 

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 them regularly. They will provide you with updates pertaining to the overtime rules that you need to know.

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