Overtime

Carol Eliason Nibley
Carol Eliason Nibley
Do you know the requirements for paying overtime to your employees? This article will explore some of the important facts you need to know about overtime and overtime pay.

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What Is Overtime?

A simple definition is that overtime is any hours worked beyond the agreed-upon schedule of an employee. Typically, overtime is considered more than eight hours in a day or 40 hours in a week. Overtime pay is the extra pay beyond the normal pay rate that someone earns when they work more than 40 hours per week or, in some locations, more than eight hours per day. The Fair Labor Standards Act (FLSA) is a federal law that requires time and a half pay for overtime hours.

Under federal law, employers can require their employees to work overtime hours unless there is a safety risk or working overtime would violate the federal Family and Medical Leave Act (FMLA). Employers are able to discipline and even terminate employees who refuse to work the extra hours.

How Does Overtime Work?

Employees whose weekly hours exceed the 40-hour-per-week limit become eligible for additional pay beyond their regular hourly rate for the hours worked over the limit. Some states define overtime on a daily basis instead of on a weekly basis. In California, for example, hours worked beyond eight a day are considered overtime hours eligible for one and one-half times the regular rate of pay. Hours worked beyond twelve in a day must be paid at double the regular rate of pay. State and local laws vary, so employers should be aware of the laws that apply to the employees in their organizations.

Who Is Eligible for Overtime?

Most employees who are paid hourly, who earn less than $684 per week or who work in positions that don’t meet the duties test for overtime exemption (such as managers, attorneys, teachers and computer professionals) must be paid overtime for hours worked in excess of 40 per week. These employees are considered non-exempt because they are not exempt from the provision that requires overtime payment. Each of the first three conditions listed below must be met in order for there to be an overtime exemption.

  • Salary Basis. Being paid on a salary basis means an employee earns a predetermined amount of pay each week that doesn’t change if employees don’t work the full week. Employees whose pay changes based on hours worked are not considered to be paid on a salary basis and are eligible for overtime pay. There are some exceptions that allow employers to make deductions when employees don’t work a full week, such as prorating the hours worked during the first and last weeks of employment and when employees take FMLA leave.
  • Salary Amount. As of January 1, 2020, the required minimum salary amount is $684 per week. This threshold increases periodically and is expected to increase again in 2022. Employees whose weekly earnings fall short of the minimum salary amount are eligible for overtime pay.
  • Duties Test. Under the FLSA, most employees are assumed to be non-exempt and therefore eligible for overtime pay. The law details some positions that are eligible for an exemption, such as bona fide executive, administrative, professional and outside sales employees. The guidelines for these exemptions are specific and those whose job duties don’t meet the necessary criteria are eligible for overtime pay.
  • Other Exemptions. Certain positions do not qualify for overtime pay. These include farmworkers, movie theater attendants, live-in domestic service workers and railroad and airline employees. Independent contractors are also ineligible for overtime pay.

What is Considered Overtime?

The Fair Labor Standards Act requires overtime pay for all hours worked in excess of 40 during a given work week. Employers are free to define the work week, such as a Sunday to Saturday week or a Monday to Sunday week, but employers cannot change the defined work week to avoid payment of overtime wages.

Payment for Hours Worked

Any time an employee performs work for an employer, the time must be counted toward the 40-hour weekly limit. Payment for hours not worked is optional for employers and doesn’t need to be paid at an overtime rate. (See the next section for more detail.)

Payment for Hours Not Worked

Employers may voluntarily choose to pay overtime to employees for hours not worked, such as vacation time or sick time. Employers should establish a policy and follow it consistently.

What is Not Considered Overtime?

The Fair Labor Standards Act doesn’t require employers to pay overtime if the actual hours worked are at or under 40 per week if so stated in an employee handbook. But employers must follow their own policies.

Holiday, Vacation and Sick Pay

Payment for time not worked is not required even if the total hours for the week may exceed 40. For example, an employee may have worked nine hours per day for four days and then received eight hours of holiday pay. Unless this employee is in a jurisdiction that requires overtime on a daily basis, they are not entitled to overtime pay since they actually worked 36 hours and not 44 hours.

Sleep Time and Meal Breaks

Some employees work long shifts of 24 hours or more. These employees may have a sleep time exclusion of up to eight hours with prior agreement with their employers and if adequate sleeping accommodations are available. Employees whose shifts are shorter than 24 hours do not have a sleep time exclusion. Employees who have a meal break of 30 minutes or longer, even if they must remain on company premises, are not entitled to pay for the meal break if they aren’t performing work during the meal. Both the sleep time exclusion and meal breaks are considered time not worked for purposes of calculating regular and overtime pay.

Shifts Longer than 40 Hours in a Week for Police Officers, Fire Fighters, Medical Care and EMS Employees

Certain employees may work alternative schedules during the month that are defined by the work period rather than by the standard 40 hour workweek most other professions use. As long as these police officers, firefighters, medical care and EMS employees don’t exceed the number of hours worked during the specified work period, they are not entitled to overtime pay.

Other Situations

Many other situations may influence the payment of overtime, such as travel time, training time and other types of pay. To the extent these situations don’t require the payment of wages, employers are not obligated to pay overtime either.

How To Calculate Overtime Pay

Overtime pay is calculated by determining the regular rate of pay, which may be different from an employee’s hourly rate, and then paying the regular rate for hours worked under 40 and time and a half for hours worked over 40 per week. Some employers don’t understand that the regular rate of pay will include all non-discretionary bonuses and differentials in addition to the hourly rate of pay.

Step 1: Determine the Regular Rate of Pay

If an employee has earned a production bonus, a shift differential or any additional pay on top of their hourly rate, these payments must be added together.

Suppose an employee works 44 hours and earns $10 per hour. Let’s also assume the employee has a production bonus of $88 for the week. First calculate the regular earnings by multiplying 44 hours by $10 per hour. Add the $88 bonus to the $440 total. Divide $528 ($440 plus $88) by 44 hours. The regular hourly rate is $12 per hour.

Step 2: Determine the Half-Time Pay Rate

Determine the half-time rate by dividing $12 per hour by two. The half-time rate is $6 per hour. Multiply $6 times 4 overtime hours which equals $24.

Step 3: Calculate the Total Weekly Earnings

Add the earnings of $528 from Step 1 and the half-time rate of $24 in Step 2 to get the weekly earnings total of $552.

Important Considerations

Some additions to pay, such as a holiday bonus, are not considered non-discretionary and won’t need to be included in the regular rate of pay calculation.

Some non-discretionary earnings are not calculated per pay period. When this happens, employers need to recalculate the regular rate of pay and add the difference with the non-discretionary payout after the fact.

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Questions You’ve Asked Us About Overtime

Is overtime pay required by the law?
Overtime pay is required by federal law under the Fair Labor Standards Act and by some state and local laws.
Is mandatory overtime legal?
Employers have the right to require mandatory overtime work with certain exceptions as dictated by federal and state laws and for certain professions. Some union contracts also limit the number of overtime hours employees must work. As a practical matter, employers will want to limit mandatory overtime hours when it impacts the morale of their employees.
Is overtime pay time and a half?
Under federal law, overtime pay is time and a half. Some state laws require double time pay for hours that exceed certain thresholds.
Carol Eliason Nibley
Carol Eliason Nibley

Carol Eliason Nibley, SPHR, GPHR and Principal Consultant at PeopleServe, has more than 25 years of experience in human resources, most recently serving as Vice President of Human Resources for a technology company in Utah County. Carol has taught HR certificate courses at Mountainland Technical College and in other settings for more than 12 years.

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