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Understanding Overtime: A Closer Look at the Rules and How to Avoid Legal Trouble

Key details to understanding overtime and the differences between exempt and non exempt employees according to the current flsa rules and guidelines.

Does your staff include hourly, non-exempt employees? If so, the importance of accurately tracking their overtime hours can’t be overstated.

Under the Fair Labor Standards Act (FLSA), non-exempt employees are entitled to overtime pay if they work more than 40 hours in a workweek. Staying on the right side of the law starts with properly classifying employees as exempt or non-exempt, and ends with paying them the overtime rate for all eligible hours. Bridging the gap between the two is your time-tracking method, which is easier and more effective with an online service.

First things first …

Understand the Difference Between Exempt vs. Non-Exempt

Non-exempt employees are often referred to as “hourly” workers. As a general rule, non-exempt employees must receive at least the minimum wage for all hours worked, and they must receive overtime pay (at one-and-a-half times the regular hourly rate) for any hours over 40 they work in a week.

Exempt employees, on the other hand, are usually paid a salary, and aren’t entitled to overtime pay. And this is where employers get into trouble: Non-exempt employees receive overtime pay; exempt employees do not. Less honorable employers may misclassify employees as exempt to avoid having to track their hours or pay them overtime. This, obviously, is a big no-no.

Also, just because someone is paid a salary doesn’t automatically qualify the employee as exempt. Other FLSA criteria must be met, including executive, administrative or professional exemptions – sometimes called “white-collar” exemptions. In addition to holding specific job responsibilities (such as supervising others and making essential business decisions), these employees must be paid a salary of at least $913 a week (or $47,476 a year) to be exempt. Exemptions exist for outside sales employees and certain computer-related employees as well.

Know the Do’s and Don’ts of Overtime Pay

Let’s assume you’ve done your homework and properly classified every employee in your business as exempt or non-exempt. That’s the foundation for complying with the FLSA’s rules with overtime. Beyond that, you’ll want to be mindful of these “don’ts.”

  • Don’t allow “comp time” in lieu of overtime. Overtime pay is due for the week in which 40-plus hours are worked. Hours should never be carried over from one workweek to another to avoid paying overtime.
  • Don’t calculate overtime on a pay-period basis. Even if your pay cycle isn’t weekly, you must pay overtime based on the number of hours worked in a seven-day workweek.
  • Don’t count sick, personal, holiday and vacation days as part of your overtime calculations. Overtime pay only applies to actual hours worked. Thus, if an employee works 35 hours and takes a paid vacation day (8 hours) during the same workweek, he is entitled to 43 hours of pay at the regular rate with no overtime premium.
  • Don’t permit hourly employees to work off the clock, even if they want to learn something new, catch up or get ahead. If employees don’t stick to their scheduled hours, despite your rules, that’s a discipline issue. But you still must pay them for any extra time worked.
  • Don’t dock pay, or delete hours from a time sheet, for unauthorized overtime. The law requires you to pay for all hours worked, including overtime pay, regardless of whether you approved the person working those extra hours. Again, you can counsel or discipline employees if they work overtime you didn’t authorize, but you still have to pay them for the time worked.
  • Don’t make the mistake of paying overtime based on an employee’s base rate rather than the regular rate. If other forms of pay, such as nondiscretionary bonuses and shift differentials, raise the employee’s regular rate, the overtime rate also must be raised. For example, let’s say you pay a $100 performance bonus on a 50-hour workweek. You normally pay employees $10 an hour and, therefore, $15 an hour for overtime. That $100 bonus makes the employees’ base wage $12 an hour for that pay period, so overtime becomes $18 an hour.

Turn to TrackSmart for easy tracking and intelligent reporting

For all these “don’ts” with overtime pay, here’s one essential “do”:  Do rely on an easy, online time-tracking system such as TrackSmart.

You’re responsible for maintaining accurate records of all hours worked by non-exempt employees to ensure compliance with the FLSA. TrackSmart simplifies this process. In addition to capturing employee hours submitted either online or via the mobile app, TrackSmart provides a quick-reference Time Sheet Summary Report that lists regular, PTO and overtime hours for each employee. You’ll see, at a glance, the hours each employee has accumulated for the week and any hours beyond the regular 40 hours. It’s the perfect tool for managing and monitoring overtime with your staff.

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