Answers to 5 Questions about Overtime Rules

There’s no law—federal or state—that caps the number of hours a person can work (other than for minors). But if you are an employer, be sure to understand that working past 40 hours triggers overtime rules for certain employees. Some of these rules have been around for years, while others are new. Here’s what you need to know for 2020 and beyond.

1. What does overtime pay mean?

Federal overtime pay rules under the Fair Labor Standards Act (FLSA) come into play when employees who are not “exempt” (explained below) work more than 40 hours in a workweek. Once they pass this threshold, they must be paid one and one-half times their regular rate per hour (“time and a half”). For example, if a nonexempt employee’s hourly rate is $16 and he/she work 42 hours, two hours must be paid at the rate of $24 ($16 + $8).

A workweek is the period fixed by an employer, but need not start on Sunday or Monday. So, any fixed and regularly recurring period of 168 hours is a workweek. There is no requirement to pay double time if the extra hours are worked on nights, weekends, or holidays.

2. Which employees are subject to overtime pay rules?

The overtime pay rules apply only to employees who are not considered “exempt.” Exemption is based on how much they’re paid, how they’re paid (hourly or by salary), and the type of work they do.

Under a new final rule effective on January 1, 2020, the standard salary level at which employees remain nonexempt and must receive overtime pay if they work more than 40 hours is increased to $684 per week, up from the current $455 per week (the equivalent of $35,568 per year, which is up from $23,660). Because of the increase in the salary level, the government estimates that more than 1.3 million workers are potentially eligible for overtime pay.

Employees who are subject to a “minimal duties test” and receive certain compensation are called highly-compensated employees (HCEs) who are exempt from overtime rules. These include executives, administrators, outside sales people, and certain computer employees. To qualify for the exemption, in addition to the minimal duties test, such employees must receive salary of at least a certain amount. Under the same final rule, the HCE duties test has not changed, but the salary level is increased starting on January 1, 2020. The salary level for HCEs is $107,432 per year (up from the current $100,000 level).

Employers can take into account nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level.

3. What hours are counted?

An employer must count all hours that employees work. But this does not include meal breaks, whether paid or unpaid, if employees are relieved of duties during that period.

4. Can overtime rules be avoided?

If an employee is nonexempt, he or she must receive overtime pay related to hours in excess of 40 for the workweek. This cannot be avoided in most cases by offering “comp time,” which would allow employees to work fewer than their required hours in another workweek to balance things out. This cannot be done!

5. Do state rules take precedence over federal rules?

States can create their own overtime pay rules. If these rules are more protective for workers, they control over federal rules.

Final thought

The new federal rules do not provide for automatic increases in the dollar amounts for the standard salary level and the HRE salary level. But it indicated that it intends to update the thresholds more regularly in the future. For more information and resources, go to the DOL’s Wage and Hour Division.

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