More than 1.3 million American workers are potentially eligible for overtime pay after the U.S. Department of Labor recently raised the salary threshold.
While this may be good news for an ambitious employee, it can present issues for employers as they try to follow laws governing overtime pay.
No federal or state law limits the number of hours an employee can work, other than the rules governing minors.
Barbara Weltman, an attorney and small business advocate who suns the website Big Ideas for Small Business, says employers must understand and obey overtime rules.
1. What Does Overtime Pay Mean?
Federal overtime pay rules under the Fair Labor Standards Act come into play when employees who are not exempt work more than 40 hours in a work week.
Exemption is based on how much they're paid, how they'e paid—whether hourly or by salary—and the type of work they do.
Once they pass this threshold, they must be paid 1.5 times their regular rate per hour, known as time and a half.
So if a nonexempt workers who earns $16 an hour works 42 hours, the two additional hours must be paid at $24—$16 plus $8.
The employer sets the workweek, which does not necessarily start on Sunday or Monday.
Any fixed and regularly recurring period of 168 hours is a workweek.
There is no requirement to pay double time if the extra hours are worked on nights, weekends, or holidays.
2. Which Employees Are Subject to Overtime Pay Rules?
The overtime pay rules apply only to employees who are not considered exempt.
Under a new final rule effective Jan. 1, 2020, the standard salary level at which employees remain nonexempt and must receive overtime pay if they work more than 40 hours is increased to $684 per week, up from the current $455.
That's the equivalent of $35,568 per year, up from $23,660.
Employees who are subject to a minimal duties test and receive certain compensation are called highly compensated employees and are exempt from overtime rules.
These highly compensated employees include executives, administrators, outside sales people, and certain computer employees.
To qualify for the exemption, in addition to the minimal duties test, such employees must receive a salary of at least a certain amount.
Under the same final rule, the HCE duties test has not changed, but the salary level is increased to $107,432 per year starting on Jan. 1, 2020, up from the current $100,000.
Employers can take into account nondiscretionary bonuses and incentive payments—including commissions—that are paid at least annually to satisfy up to 10% of the standard salary level.
3. What Hours Are Counted?
An employer must count all hours that employees work.
But this does not include meal breaks, whether paid or unpaid, if employees are relieved of duties during that period.
4. Can Overtime Rules Be Avoided?
If an employee is nonexempt, he or she must receive overtime pay related to hours in excess of 40 for the workweek.
This cannot be avoided in most cases by offering comp time, which would allow employees to work fewer than their required hours in another workweek to balance things out.
"This cannot be done," Weltman stresses.
5. Do State Rules Take Precedence Over Federal Rules?
States can create their own overtime pay rules.
If these rules are more protective for workers, they take precedence over federal rules.
The new federal rules do not provide for automatic increases in the dollar amounts for the standard salary level and the HRE salary level.
But the Department of Labor indicated its intention to update the thresholds more regularly.