When employees work longer hours than they are scheduled for, not paying them an adequate amount for their additional work could cause serious problems for the employer. Employees who are eligible for overtime payments but don’t receive it can take their case to court, which will cost the employer legal fees and put a tremendous dent in their company’s reputation. To avoid the problems and hardships of an overtime pay lawsuit, employers must understand what exactly overtime pay is, how it is calculated, and who is exempt from this type of premium payment.
What is Overtime Pay?
While overtime pay isn’t always the most desirable thing for either employer or employee, there are situations when it is needed, especially for businesses that work with limited staff or an unlimited amount of work. Overtime pay is a worker’s compensation for performing work beyond their standard 40 hours of work per week. For example, if an employee is eligible to receive overtime pay and their standard workweek is 40 hours, working 55 hours in a given week means they will earn overtime pay for those extra 15 hours.
What is the Purpose of Overtime Pay?
The purpose of overtime pay is to provide workers with more compensation for their time and compensate them fairly when they have extra work that needs to be completed. Overtime pay is designed to protect both employers and workers through fair wages, consistent work hours, and a productive workforce.
The federal overtime provisions are included in the Fair Labor Standards Act (FLSA), which requires that all workers covered by the Act must receive their overtime pay for hours worked over the standard 40 hours in a workweek unless they are exempt. According to the FLSA, there is no limit on the number of hours employees 16 and older can work in any workweek. The FLSA also does not require overtime pay for work on weekends or holidays unless overtime is worked on those days.
How Does It Work?
The FLSA applies on a workweek basis and considers that a worker’s week is a fixed and regularly cyclical period of 168 hours, which are seven consecutive 24-hour periods. The workweek doesn’t have to coincide with the calendar week, and it can begin on any day and at any hour of the day. Companies and businesses can establish different workweeks for different employees or groups of employees, but averaging work hours for two or more weeks is forbidden.
Overtime pay earned in a specific workweek has to be paid on the regular payday for the pay period in which the salary was made. Nevertheless, in May of 2020, the Department of Labor announced their final rule, allowing employers to pay bonuses, overtime, and other incentive-based pay to salaried, non-exempt employees whose work hours vary from week to week.
This rule now clarifies that payments, in addition to the fixed wages, are compatible with the use of the fluctuating workweek system under the Fair Labor Standards Act. Also, according to the Department of Labor (DOL), as of January 2020, all employees who earn less than $684 per week or $35,568 in a year have the right to federal overtime protection, even when they are considered exempt.
What are the Different Types of Overtime Pay?
There are several types of overtime pay an employee can earn. There are:
- Double-time pay – This refers to pay that is double the amount an employee usually receives for their regular hours of work. For instance, if they usually get paid 15$ per hour, double-time pay earns them 30$ for each overtime hour worked. They may receive double-time pay if they work on a federal holiday or just for working overtime. Contrary to regular overtime, the FLSA doesn’t have a specific requirement for double-time pay;
- Time-off in lieu (TOIL) – Some employers will give their employees additional time off instead of paying their employees for overtime. Usually, an employer and employee will negotiate the specifics of this arrangement, such as how much time they can take off and when;
- Voluntary overtime – This is a type of overtime when an employer offers additional work, and the employee is free to accept or decline without penalty;
- Non-guaranteed overtime – This is overtime an employer doesn’t have to offer, but if they do, an employee is required to work those hours per terms in their employment contract;
- Compulsory overtime – This type of overtime is mandatory and includes provisions set in the terms and conditions of the employee contract. Compulsory overtime requires an employer to follow certain rules and regulations to stay compliant.
Who is Exempt from Overtime Pay?
Although employees who work overtime are generally entitled to overtime pay, there are some instances when overtime pay doesn’t apply to certain groups of workers, namely those who have professional, managerial, administrative, or executive roles. Those employees fall under an ‘exempt’ group of workers, and they will not get overtime premium payments, even if they work more than eight hours in a day or more than the standard 40 hours in a workweek.
To be exempt from any of the mentioned categories under New York state law, an employee must earn twice the minimum wage for their full-time work. The following list displays the minimum weekly and annual salary an employee must make in a year to be properly classified as exempt in New York, depending on the size of their employer. If an employee earns less than the listed amount, they are exempt, and overtime laws will apply. If they make more than the amount listed here, their employer must also prove that they fall into one of the mentioned categories for an employee to be exempt from overtime.
- New York City, 11 or more employees – $1,125.00 per week ($58,500.00 per year);
- New York City, 10 or fewer employees – $1,125.00 per week ($58,500.00 per year);
- Nassau, Suffolk, and Westchester counties, regardless of the size of employer – $1,050.00 per week ($54,600.00 per year);
- The remainder of State, regardless of the size of employer – $937.50 per week ($48,750 per year).
The Exempt Categories of Employees
Aside from making twice the state minimum wage, a professional employee must also either spend at least half of work hours doing work in a field generally considered a ‘learned or artistic profession,’ or spend half of their working time doing tasks in one of the following licensed/certified professions:
- Medicine (doesn’t include nurses);
- Law (in some cases including law school graduates but not paralegals);
- Dentistry (doesn’t include dental hygienists);
- Teaching; and
- Accounting (includes only certified public accountants).
For a job position to be considered a ‘learned or artistic profession,’ an employee must have a specialized college degree or pursue other paths of academic study. A job can also be exempt if the work is original, creative, and depends primarily on the employee’s own invention, talent, or imagination. Some computer and high-tech industry employees will fall into this category. In addition to this, to be exempt, an employee must regularly exercise discretion and independent judgment over important matters.
To be exempt as an administrative worker, an employee must make twice the minimum wage and be able to answer ‘yes’ to the following requirements:
- Are they regularly allowed to make independent decisions without direct supervision about the important matters in the company?
- Do they spend more than half of their time on administrative tasks of substantial importance to management?
Additionally, they must be able to answer ‘yes’ to one of these three questions:
- Do they regularly and directly help the company owner or another manager or administrator?
- Do they perform work that requires experience, special training, and knowledge without direct supervision (or with minimal supervision)?
- Do they perform special tasks that require them to make decisions that affect the company?
A managerial or executive employee must make twice the state minimum wage to be exempt from overtime pay; however, they also must be able to answer ‘yes’ to these requirements:
- Are they spending more than half of their time either managing a certain department or subdivision of the company or doing managerial work (assigning work to others, supervising, evaluating employees, planning work, keeping records, controlling the flow of supplies and merchandise, etc.)?
- Are they allowed to make independent decisions without supervision about important company matters?
- Do they regularly supervise the work of two or more full-time employees?
- Do they make recommendations about the hiring or firing of employees and have the authority for those recommendations to be taken seriously?
If an employee’s job is classified as an Outside Sales position, then their main duties are making sales or taking orders outside their company’s main workplace. These employees can be paid either a salary or commission-based structure, but they need to spend more than 20% of their time performing work other than sales to fall under this category.
How Much is the Overtime Pay?
As federal law stipulates, overtime payments are paid at a rate of at least one-and-a-half times the employee’s regular hourly rate of pay, also known as time-and-a-half. There is no maximum amount that an employer can pay to compensate an employee for their overtime work, so companies sometimes offer double pay or higher for overtime work, usually when the shift being intended for overtime is particularly undesirable.
Using the one-and-a-half rule of thumb, an employer would calculate overtime pay by multiplying a worker’s hourly rate by 1.5 and then multiplying the result by the number of overtime hours they worked. This amount is then added to the amount an employee makes within a 40-hour workweek.
Here is an example – If an employee who makes 15$ per hour worked 45 hours in a workweek, the equation would go like this:
Employee’s regular pay rate: 40 hours x 15$ = 600$
Employee’s overtime pay: 15$ x 1.5 x 5 hours = 125$
Employee’s total pay for the workweek = 600$ + 125$ = 725$
This equation works regardless of how much overtime an employer offers their employees. It’s important to note that this equation only applies to non-exempt employees and that the total pay for the workweek, including the additional overtime payment, is subject to regular tax rates.
What are the Penalties for Employers Who Fail to Pay Overtime?
Employers who violate overtime laws will have to pay any back wages owed to the affected workers, in addition to a ‘liquidated damages’ penalty of 100% of the underpayment, which is typically calculated as the number of back wages owed.
As a result, failure to comply with the FLSA rules can cost employers double the amount of paying their employees overtime in the first place. Violations committed on purpose can also result in substantial fines and the threat of imprisonment if the employer is a repeat offender.
To find out whether you have a case worth pursuing, feel free to contact Cilenti & Cooper today. We treat every case with the attention and care it deserves and can fight for your rights from beginning to end. We offer a free consultation to all prospective clients, so you have nothing to lose.