Overtime Pay: Beyond the 40-Hour Rule
Besides the Fair Labor Standards Act's (FLSA) regular overtime law, there are rules for overtime exemptions, fluctuating workweeks, weighted average and premium pay.
Nonexempt employees must receive overtime pay — at 1.5 times their regular rate of pay — for working over 40 hours in a workweek. (Nonexempt means they are not excluded from overtime pay under the FLSA.)
When calculating overtime, it's important to consider the FLSA's criteria for hours worked, what constitutes a workweek, and what can and cannot be included in the regular rate of pay.
The FLSA allows for certain exemptions from overtime pay. The most common exemptions are for salaried executives and administrative and professional employees who satisfy the FLSA's job duties test. Provided these employees receive no less than $684 per week in salary (effective Jan. 1, 2020), they are not eligible for overtime pay even when they work more than 40 hours in a week.
Note that the FLSA has many other overtime exemptions, including for outside salespeople, airline employees and certain computer professionals.
The FLSA permits employers to use the fluctuating workweek method when calculating overtime for employees who work different hours from week to week and receive a fixed salary — regardless of the number of hours worked for the week.
With the fluctuating workweek method, each hour worked over 40 must be paid at no less than half the employee's regular rate of pay. This reduced overtime rate is allowed, provided specific legal requirements are met, as described in 29 CFR Section 778.114.
If an employee has multiple positions in the company that pay different rates, you'll need to consider the FLSA's weighted average overtime rules. In this circumstance, overtime is calculated according to the weighted average of the various rates.
To figure the weighted average:
- Multiply the hours worked for each job by the respective hourly rates.
- Add up #1 to get the total compensation.
- Divide #2 by the total number of hours worked for all jobs.
To get the overtime rate, multiply the weighted average by 1.5.
Premium pay is a type of special payment that employees receive for working outside their normal work period — such as weekends, late shifts, vacation days, holidays or undesirable hours.
If the premium pay is compensated at higher than the FLSA's standard time and a half overtime requirement: (a) it can be used to offset overtime wages due under the FLSA, or (b) it can be credited toward overtime wages required by the FLSA.
To receive this treatment, the premium pay must meet the definitions outlined in 29 U.S. Code Section 207. If the premium pay does not satisfy the Code's definitions, it should be regarded as straight time pay.
To make sure you're in compliance with these complex rules, be sure to work closely with a payroll professional.