If you have employees working for you, hopefully you already know you're required to pay them at least minimum wage. But while most employers understand some of the basics of laws regulating wages, one particular category of law gets a little confusing: overtime rules.
Your staff may want to work long hours to help make your business a success, but if you have people working for you that exceed the "typical" working hours, you may need to pay them extra to avoid potential legal trouble. If you're not sure who should be paid overtime -- or when -- this guide will provide the answers you're looking for.
What is overtime pay?
Overtime pay is extra pay some employees are entitled to receive, by law, when the hours that they work exceed set limits. The federal government has laws requiring overtime pay that are found in the Fair Labor Standards Act. Individual states can also set more stringent overtime pay requirements than the federal government, but state regulations cannot weaken federal rules.
When an employer violates rules on overtime pay, state Departments of Labor may launch an investigation and take action. Employees can also sue -- sometimes in a class action -- to recover unpaid overtime wages plus penalties.
Who is entitled to overtime?
Only employees, not independent contractors, are entitled to overtime pay. And not all employees must be paid extra when their working hours exceed limits. Some employees are exempt, including:
- Salaried employees who earn at least $455 weekly and whose main job duties involve high-level work that requires judgement and discretion. Examples include employees who perform administrative or professional work, many IT professionals, and certain other white collar workers.
- Many transportation employees, including taxi drivers, drivers of motor carriers, railroad operators, and employees of air carriers who are paid based on rate plans.
- Certain employees who are paid on commission, including retail sales people.
- Live-in domestic service workers, such as maids, nannies, and companions for the elderly.
- Many farm workers.
The Department of Labor has a long list of employees who can be exempt from overtime rules, but you need to make certain you don't classify an employee as exempt who isn't. Some employers hire low-skilled workers and give them fancy titles and a salary to try to make them exempt from overtime so they can work long hours for little pay. Unsurprisingly, this can create serious legal problems for those employers if they're caught.
How much is overtime pay?
Federal law requires employers pay time-and-a-half if employees work over 40 hours in a workweek. If an employee makes $10 hourly, his overtime rate would be a minimum of $15 hourly.
A workweek can be defined in any way that the employer and employee agree -- it doesn't have to start on Sunday and end on Saturday. And, different employees for the same company can have different work weeks. However, a work week must consist of seven consecutive 24 hour days and employers can't average hours over two or more weeks to determine if overtime must be paid.
There's no limit to the number of hours any employee aged 16 or over can work under federal regulations, and federal laws don't mandate employers pay overtime just because an employee works on a holiday, Saturday, or Sunday -- unless working on those days would push the employee over 40 hours in a workweek.
When employers owe overtime pay, it must be paid on the regular payday for the weeks in which the overtime wages were earned.
State laws may be different
Employers in every state must comply with federal overtime laws -- but they also need to know their own state's rules because some states are much more generous to workers.
For example, in California, employers must pay overtime if an employee works over eight hours in a single day or if an employee works more than six days in a week. Employees are entitled to time-and-a-half for the first eight hours worked on their seventh straight day of work or for any hours worked over eight in a day. If an employee works more than 12 hours in a single day, he or she is entitled to double pay for those additional hours -- as are employees who work more than eight hours on a seventh consecutive workday.
Alaska and Nevada also impose overtime requirements if an employee works more than eight hours in a day; Oregon requires manufacturing workers be paid overtime after 10 hours; and Colorado requires employees to be paid overtime if they work more than 12 hours. And, as in California, Kentucky workers have to be paid overtime on their seventh consecutive workday in a week.
To confirm what the rules are in your state, check with the Department of Labor where your business operates -- don't assume compliance with the federal rules means you've satisfied your responsibilities.
Make sure you comply with the law
Most employers want to do right by their workers, and if you're reading this, you're probably one of them. Now that you know the laws, you can comply with your obligations to reward your workers for the time they put in by paying overtime when required. You'll avoid legal risk and help to develop your reputation as a good employer who cares about your staff's well being -- and that can be priceless.