Labor Law Information Resource Center
Overtime Pay For Salary Employees
New Overtime Law for Salaried Employees
Half a century ago, overtime (OT) pay was the norm, with more than 60 percent of salaried employees qualifying. But over the last 40 years the number of employees qualifying for OT has steadily declined, so that only about 8 percent qualify for it today.
That has allowed some employers to take advantage of salaried workers, requiring them to be on the job for 50, 60, 70 or more hours a week without overtime pay. It’s a situation, the Labor Department says, that has some workers with a level of income that falls below the federal poverty line earning too much to automatically qualify for OT.
Under the provisions of the Fair Labor Standards Act (FLSA), most employees are entitled to overtime pay of 1½ times their regular wage when they work enough hours to qualify for it. Such employees are referred to as “non exempt,” that is, they are not exempt from being paid overtime.
Being paid on an hourly basis is not necessarily synonymous with non-exempt status. As of this writing, the threshold that separates Exempt from Non-Exempt employees is a salary of $23,600 per year ($454 per week3) when one works enough hours to qualify (federal law) for it. Your state may have additional laws that apply.
In 2014, President Obama directed the Secretary of Labor to review federal OT regulations, defining which salaried workers are protected by the FLSA’s minimum wage and overtime standards. On 18 May 2016, the Obama administration announced the publication of the Department of Labor’s Final Rule updating its overtime regulations. Labor Department officials have estimated that 4.2 million workers will be affected by the change. The Economic Policy Institute places that number even higher, at 12.5 million workers.
New Rules Take Effect 1 December 2016
1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker). They will have to be paid extra when they work more than 40 hours in a week.
2. Establishes a mechanism for automatically updating the salary and compensation levels every three years (beginning in 2020) to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.5 This aspect of the rule is intended to prevent the earnings rate from falling as far behind as it had been allowed to in previous years.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
New Rules Temporarily Blocked
However, according to the December 2016 issue of Labor Talk (a publication of the Oklahoma Department of Labor), implementation of the Obama administration’s new overtime rules has been temporarily blocked. “U.S. District Judge Amos Mazzant issued a preliminary injunction temporarily blocking the Obama administration’s new overtime rule. Twenty-one state attorneys general and a coalition of business groups filed two separate lawsuits against the rule, which were subsequently consolidated into one case in federal district court in the Eastern District of Texas.
“The rule, scheduled to take effect on December 1, would have doubled (to $47,476) the salary threshold under which most workers are guaranteed overtime pay. The lawsuit argues the salary threshold is too high and that the U.S. Department of Labor exceeded its authority in establishing an automatic adjustment (likely increase) every three years. Employers should note that the new overtime rule will not take effect as planned on December 1. However, employers are encouraged to monitor the situation should the injunction be lifted.”
Anyone paid a set amount each week – regardless of the number of hours worked – is considered salaried and exempt from overtime pay requirements. Yet, being paid a salary does not automatically define an employee as exempt from being paid OT. While most salaried employees are exempt employees, not all are.
To be considered exempt, employees must meet several conditions. Whether they are exempt or nonexempt depends on several factors:
(a) How much they are paid,
(b) How they are paid, and
(c) What kind of work they do.
Typically, exempt employees are well-paid individuals with exceptional benefits. They are often involved in the management of the companies they work for. Most employees must meet all three aforementioned "tests" to be exempt. The major exemptions available under FLSA include:
Physicians & Surgeons
Exempt employees are not paid overtime. An exempt employee’s salary is not tied directly to the numb of hours they put in, and it is not unusual for them to work more than 40 hours/week with no additional pay.
These are generally workers who are hourly, or salaried and earning (as of this writing) less than $23,600 annually ($454 per week) in guaranteed salary. Such employees are paid overtime when they qualify for it.
Because technology has blurred the distinctions between blue and white collar workers, job titles have become increasingly irrelevant for determining an employee’s FLSA classification. Eligibility is based upon occupations, wages or salaries, and job duties
Employees who clock-in before the start of a shift, or clock-out after the end of a shift and are performing legitimate work-related activities must be paid for their time.
An activity constitutes “work” if:
✅ It is undertaken primarily for the employer’s benefit.
✅ The employer knew or should have reasonably known that the activity was performed.
✅ The activity was controlled or required by the employer.
A few of the many activities considered to be work, and therefore compensable, are these:
Pre-shift "roll calls.”
Time spent setting up equipment before the official start time of a shift. Time spent disassembling equipment necessary for an employee’s job which causes them to stay beyond the end of a shift.
However, an employee who clocks-in early for the start of their shift, say 10 minutes early, and proceeds to do some non-work related activities (getting coffee, reading the newspaper, etc.) should not be paid for this time. Such activities are not job-related & therefore not compensable. In general, an employer must compensate an employee for pre- and post-shift activities if they are “integral and indispensable” to the employee’s principal work activities
Employers should clearly communicate to employees their policies for clocking-in early or late for work shifts, which activities are compensable, and which are not. Lunch time early-return-policy should be covered as well. All of these can add time to an employee’s time card which can become payable as OT.