18 Jul Guide to FLSA Overtime Rules
Following are three examples of FLSA Overtime violations. Penalties can be severe. The Department of Labor’s Wage and Hour Division (WHD) is very aggressive about enforcing FLSA Overtime rules. The WHD answers 900,000 calls from employees asking if their rights were violated each year.
“Hey Pam, I have you on the schedule for 42 hours this week but just 30 next week. Can you just clock 32 next week and 40 this week?”
“This training doesn’t count as work hours since we don’t have customers then.”
“Bob, you receive a set salary of $500 a week, so you’re not eligible for overtime.”
Protecting your business is essential. This can be as easy as partnering with a payroll and HR provider. Payroll Partners works with small and midsize businesses to provide compliant payroll solutions for employees in the U.S.
What is the FLSA?
The Fair Labor Standards Act (FLSA) is a law that sets minimum wage, overtime pay, recordkeeping, and youth employment standards. This federal law applies to nearly all businesses in the U.S. Here are the main aspects of the FLSA:
- FLSA Minimum Wage: The federal minimum wage is $7.25 per hour. Many states and jurisdictions also have minimum wage laws. The employee must be paid the highest minimum wage that applies to their location.
- FLSA Overtime: Covered non-exempt employees must receive overtime pay for hours worked over 40 per workweek. Overtime pay is 1.5 times the regular rate of pay. There is no limit on the number of hours employees 16 years or older may work in any workweek. Certain state and local jurisdictions have overtime laws. The employee must be paid the highest rate that applies to their location.
- Hours Worked: Hours worked include all the time during which an employee is required to be on the employer’s premises, on duty, or at a prescribed workplace.
- Recordkeeping: Employers must display an official poster outlining the requirements of the FLSA. Employers must also keep employee time and pay records.
- Child Labor: These provisions protect the educational opportunities of minors and prohibit their employment in jobs and under conditions detrimental to their health or well-being.
What are the FLSA Overtime Rules?
Non-exempt employees must be paid at least one and a half times the regular wage rate for all hours worked over 40 in one workweek, which is defined as seven consecutive 24-hour periods. The Department of Labor (DOL) defines a workweek as “a period of 168 hours during 7 consecutive 24-hour periods. It may begin on any day of the week and at any hour of the day established by the employer.”
It’s very important to note that the DOL refines this explanation, “For purposes of minimum wage and overtime payment, each workweek stands alone; there can be no averaging of 2 or more workweeks.” You’re required to pay overtime during the payroll period in which the employee earned it. So, if you pay employees weekly, then their overtime pay must be paid weekly.
An Example of FLSA Overtime Payment Rules
Say your business pays employees every two weeks. You have an employee who worked 45 hours during the first week but just 30 hours in the second week of the pay period. Even though the employee averaged 37.5 hours per week, that employee is due overtime pay. The reason is in week one, the employee worked 5 hours beyond the 40 hours workweek. So those 5 hours must be paid at 1.5 times their regular wage rate.
It doesn’t matter whether or not the employee volunteered or requested those extra hours in week one. Anything over 40 hours in a workweek must be paid the overtime rate.
Exempt Employees Vs. Non-Exempt
Exempt employees are not entitled to the overtime rate pay mandated by the FLSA. Be sure your employees are classified properly as exempt or non-exempt from FLSA regulations. It’s not as simple as having “salaried” employees or people you label as “managers” exempt from FLSA benefits.
The FLSA has strict rules for how to classify employees as exempt or non-exempt. The experts at Payroll Partners can help you properly classify employees to avoid costly penalties.
How to Calculate FLSA Overtime
Non-exempt employees must be paid at least 1.5 times their regular wage rate for all hours worked over 40 in one workweek. However, if your employee works in a jurisdiction where the overtime rate is greater than the federal rate, the employee must be paid the higher rate.
An employee’s regular wage rate typically includes all compensation, such as bonus pay. The first step to calculating FLSA overtime pay is to calculate the employee’s total compensation. Then divide the total compensation by the number of hours worked during the workweek. This is the employee’s regular wage rate.
How many hours did an employee work? You must add up all compensable time. This can include time an employee is not able to use their time as they wish. For instance, this can include the time it takes to remove gear, travel time that’s not part of their normal commute, meetings, and time spent at the place of work at the employer’s direction. Compensable time can even include a lunch hour if you’ve directed the employee to continue some work duties while on lunch.
FLSA Overtime Penalties
Your business can face thousands of dollars in penalties, plus you’ll owe back wages to affected employees. If your violations are judged to be “willful,” you can face criminal prosecution. For example, in a recent case, FLSA overtime violations cost the owner of the Tipsy Taco restaurant chain $567,079 in back wages and damages for 215 workers. This business denied FLSA overtime pay to its employees and failed to maintain accurate records.
Another recent example of a costly FLSA overtime penalty was a judgment against Prestige Home Care Agency. The business has to pay over $7 million dollars in back wages and damages to 1,230 current and former employees. The main violation was the failure to compensate employees’ time for work-related travel when calculating wages.
Tips for Staying Compliant with FLSA Overtime Rules
The most common way the Department of Labor discovers FLSA overtime rule violations is when an employee contacts the DOL’s Wage and Hour Division (WHD). It’s as simple for an employee as filling out a form on the internet or making an anonymous call to 1-866-487-9243 in one of 200 languages spoken at the department.
The WHD also conducts over 4,000 outreach events each year to educate workers about their rights. Here’s how to protect your business from an audit from the DOL:
Keep detailed payroll records for at least three years. Your state may also have recordkeeping laws with which to comply.
Comply With the Poster Rule
Display an official FLSA poster where all your employees can easily see it. Displaying this poster is mandatory.
Keep Up With Classifications
Periodically review your employee job descriptions, hours worked, and payrolls record for each employee. Be sure each employee is still classified correctly based on their changing job roles.
Provide FLSA training to all employees, and especially to managers, because without training, they may make decisions that violate an employee’s FLSA rights and put your business at risk.
Resolve Issues Internally When Possible
Take action to resolve issues. The main way FLSA penalties come about is through employee complaints to the Department of Labor. If you can fix issues quickly and fully to the employee’s satisfaction, you may be able to avoid an investigation, potential fines, and negative publicity.
FLSA overtime rules are specific and heavily enforced. It’s vital to properly classify your employees as exempt or non-exempt according to FLSA classification tests. All non-exempt employees will be entitled to FLSA overtime pay.
Keep in mind that your state or local government may have overtime laws that pay more than the FLSA requirements. You must pay the highest rate that applies to your employee. Violations of FLSA overtime rules can result in substantial penalties and back wages owed to affected employees. To stay compliant, businesses must maintain organized payroll records. It’s highly recommended that businesses train their employees about FLSA overtime rules to avoid mistakes. Incorrect pay, whether intentional or not, can result in DOL investigations, audits, and fines.
This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.