Who is entitled to overtime pay? Many employees in the USA receive overtime because of the Fair Labor Standards Act (FLSA). This federal law sets overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a week. However, this rule does not apply to certain overtime-exempt employees.
Exemptions occur for various reasons. Employees such as taxi drivers may be exempt because of their position. Professionals may be exempt because their salary is above the threshold. Here, we will cut through the legal jargon and clarify the differences between exempt vs. non-exempt employees when it comes to time tracking laws.
- What are Overtime Exempt Employees?
- Overtime Law for Salaried Employees
- Non-Exempt Employees: Categories
- Overtime Laws
- Paying Overtime to Exempt Employees
- Compliance With Non-Exempt Employee Overtime Law
- Why You Should Be Time-tracking
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Definition: Overtime Exempt Employees
What is an overtime exempt employee? Most commonly, employees are exempt because they are salaried (not hourly) and perform executive, administrative, or professional duties. These employees do not receive time and a half for extra hours worked.
Certain professions are exempt, according to the FLSA. These may include employees from disparate fields including farmworkers, movie theater employees, and more. Employers and employees should check with federal and local regulations to determine exemption status.
For overtime exempt employees, employers may create a benefits package that offers perks in lieu of overtime pay. If you are an exempt employee and overtime hours are racking up, consider negotiating with your manager for a raise. Overtime for exempt employees and overtime for salaried employees can become complicated but don’t worry, we’ve got you covered.
Overtime for Salaried Employees Law
There are three criteria that determine whether an employee is exempt or nonexempt. To be considered “exempt,” an employee must satisfy all three of the following requirements”, making them eligible for overtime for salaried employees 2020.
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Salary Basis
Overtime exempt employees must be paid a salary as opposed to being paid on an hourly basis. This means the employer pays the employee for any week in which they perform work, regardless of the quality or quantity of the work.
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Salary Level
As of July 1, 2024, overtime exempt employees must earn $844 per week or $43,888 annually. These salary requirements do not apply to teachers and employees practicing law or medicine.
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Duties
Employees may also be exempt because of the nature of their work. The FLSA includes exemptions for those performing executive, administrative, professional duties. It also exempts computer employees and those in outside sales.
Highly Compensated Employees Exempt from Overtime Pay
Highly compensated executives and employees with a salary of $107,432 or higher are exempt if they perform non-manual work and customarily exempt duties.
Non Exempt Employees: Categories
Usually, if an employee meets the above requirements, they are overtime-exempt. However, exempt employees and overtime regulations can be complicated. Some employees are not exempt even if they meet these requirements.
The following nonexempt employees must receive overtime pay of time and a half their usual fee:
Blue-Collar Workers
Exemptions only apply to white-collar workers who meet the salary and duties criteria. Blue-collar workers who work with their hands, such as carpenters, mechanics, plumbers, etc., are not exempt no matter how highly paid they are. In short, these workers will always receive federally-regulated overtime pay.
Police, Firefighters & First Responders
First responders such as police officers, correctional officers, firefighters, and paramedics are not exempt no matter how high their salaries.
Non Exempt and Exempt Employee Overtime Law
FLSA set the federal minimum wage ($7.25 in 2024) for nonexempt employees. They must receive time and a half for any hours they work over the standard 40.
State and Municipal Laws
While the FLSA sets a federal standard, certain states have expanded overtime laws. When both state and federal overtime laws apply, employees receive the overtime according to the higher standard (i.e., the standard that provides the higher rate of pay).
Collective Bargaining Agreements
The minimum standards of non exempt employee overtime pay set by the FLSA may be exceeded by a collective bargaining agreement, but cannot be waived or reduced. Employers may agree to provide a higher wage, shorter workweek, or higher overtime than provided by FLSA.
Paying Overtime to Exempt Employees
As covered above, salaried employee overtime law dictates that exempt employees receive minimum salaries. Here, we’ll answer all your questions about reaching salary minimums and paying overtime to exempt employees.
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Does an employee’s salary include bonuses and incentive payments?
According to FLSA, employees must receive $43,888 annually or $844 a week to be exempt. Nondiscretionary bonuses and incentive payments such as commissions can satisfy up to 10% of the minimum salary requirement ($84.40/week). To qualify as nondiscretionary, bonuses must be tied to measures such as sales or profitability. Employers must make these payments at least annually.
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Can employers make up a salary that falls short of the required minimum?
Say at year’s end, an employer finds the sum of the salary plus nondiscretionary bonuses falls short of the salary minimum. The employer will have one pay period to make up for the shortfall of the 52-week period’s salary. If the employer does not make the catch-up payment, the employee can claim payment for any overtime hours worked the previous year.
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Can employees be compensated with comp time?
If exempt employees are being asked to work extra hours, many employers offer time in lieu, or compensatory time off. This means if an exempt employee works a weekend trade show, they may be given two days off the followed week in place of extra pay.
Comp time can be used only for exempt employee overtime pay. Nonexempt employees must receive at least minimum wage for all hours worked, and time and a half when they work over 40 hours in a week.
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Do exempt employees have to work overtime?
In theory, exempt employees receive compensation for their overtime work from their salary or from other benefits offered by the employer. Salaried employee overtime law has no provisions protecting these employees form long hours. If they find themselves regularly working overtime, they will need to negotiate with their employer for a higher salary, time in lieu, or a more reasonable workload.
Salaried Employees and Overtime Law Compliance
In order to make sure they are in accordance with salaried employee overtime law, employers must familiarize themselves with federal and local regulations. They should rigorously track hours of employees, exempt and nonexempt. If not, they may be responsible for paying claims of:
- Mistakenly treating employees as exempt when they are nonexempt.
- Failing to identify, record, compensate “off-the-clock” hours such as taking work home, working through lunch, etc.
- Failing to include “wage augments” when calculating an employee’s overtime rate.
Managing employee overtime carefully will limit liability. Employers should review their timekeeping practices. Ensure that there are systems in place to accurately record all work hours. Make provisions for overtime and exempt employees. Remember that FLSA classifies hours not only as those spent working but also time spent on other work-related tasks such as travel time and training time.
The Importance of Time-tracking for Overtime Pay Exempt Employees & Non Exempt
Using time-tracking software is the most efficient way to keep a watchful eye over employee hours. Tracking overtime digitally will allow employers to prevent overtime shifts if need be and to pay employees fairly for their houses worked. With the ability to clock in and out from a mobile app, employees won’t rack up extra uncompensated hours at home, opening employers up to future lawsuits. Time-tracking is the safest way to adhere to overtime rules.
Overtime exempt employees may not be accustomed to tracking this time, but it is important that they too stick to the business’s timekeeping policies. This will protect the business and encourage nonexempt employees must do so as well.
Inexpensive Digital Time Tracking for Exempt & Non Exempt Employees
Written by Valerie Slaughter
