FLSA Overtime Rules Explained

29 U.S.C. 207(a)(1) requires that a covered, non-exempt employee receive compensation for hours over 40 in a workweek at a rate not less than one and one-half times the regular rate at which the employee is employed. Three things follow from the wording:

• The threshold is weekly. Federal law has no daily overtime and no cap on hours.
• The multiplier is a minimum; employers may pay more, not less.
• The base is the regular rate, a defined term that is not simply the hourly wage.

The FLSA requires no premium for weekends, nights or holidays as such; those hours count toward the 40 like any other.

A workweek is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods. It need not coincide with the calendar week and may start on any day and at any hour, but once established it stays fixed; it is not moved from week to week to suit the schedule.

Each workweek stands alone. Hours worked in two workweeks are not averaged, even when both fall in the same biweekly or semi-monthly pay period. An employee who works 48 hours in week one and 32 in week two is owed 8 hours of overtime for week one.

The regular rate is the hourly rate actually paid for the normal, non-overtime workweek. For an employee paid a single hourly wage and nothing else, it is that wage. For others it is computed: total remuneration for the workweek, less statutory exclusions, divided by total hours worked. The method is in 29 CFR 778.107 and following.

Payments that must be included: non-discretionary bonuses (production, attendance, bonuses promised in advance), shift differentials, commissions and most other payments tied to work. The statute lists a limited set of exclusions, among them bonuses that are genuinely discretionary; the DOL regulations at 29 CFR part 778 explain which payments fall on which side.

Example

An employee earns $20 an hour, works 45 hours and receives a $45 non-discretionary attendance bonus. Straight-time earnings: 45 × $20 + $45 = $945. Regular rate: $945 ÷ 45 = $21. Overtime premium: 5 × $10.50 = $52.50. Total: $997.50, against $995 if the bonus were left out of the rate.

Salaried non-exempt employees

A fixed weekly salary for a fixed number of hours yields a regular rate of salary ÷ hours: $1,000 for 40 hours is $25, and hours over 40 are paid at $37.50. Monthly or annual salaries are first converted to a weekly amount. The overtime calculator performs these calculations.

Overtime applies only to non-exempt employees. The executive, administrative and professional exemptions require all of the following:

• Salary basis: a predetermined salary that does not vary with the quality or quantity of work.
• Salary level: a salary at or above a threshold set by Department of Labor regulation. The threshold has changed several times; check the current figure on the DOL website rather than a number quoted on a third-party page.
• Duties: the employee's primary duty must match the exemption, for example management of a department or office work that requires independent judgment on significant matters. The DOL fact sheets for each exemption describe the tests.

Job title and salary alone do not create an exemption. A salaried assistant manager who mostly performs the same work as hourly staff may be non-exempt and owed overtime. Other exemptions exist for outside sales, certain computer employees and specific industries.

States may set stricter rules, and where they do, the employee gets the more protective one. California is the prominent example. Labor Code 510 requires non-exempt employees to be paid:

Daily overtime is computed first; the weekly rule then applies only to hours not already paid at a premium (no pyramiding). California also requires one day of rest in seven (Labor Code 551 and 552) and permits an alternative workweek schedule of up to 10 hours a day without daily overtime (Labor Code 511).

Overtime depends on hours worked, so what counts as work matters:

• 29 CFR 785.18: rest periods of short duration, running from about 5 to 20 minutes, are customarily paid and must be counted as hours worked.
• 29 CFR 785.19: bona fide meal periods, ordinarily 30 minutes or longer, are not work time, but only if the employee is completely relieved from duty. An employee who must remain at the desk or respond to calls during lunch is working.

The FLSA itself does not require employers to give breaks; many states do. Rounding of punches under 29 CFR 785.48 is permitted only if neutral over time; see the 7-minute rule guide.

29 CFR 516.2 requires employers to keep, for each non-exempt employee, records including the time and day the workweek begins, hours worked each workday, total hours each workweek, the regular rate, straight-time and overtime earnings, deductions and the pay period covered; Department of Labor Fact Sheet #21 summarizes the list. Payroll records are retained for 3 years and the supporting time cards and schedules for 2 years. No particular form is required, but the records must be accurate.