The laws governing overtime requirements can change, and the penalties for noncompliance can be expensive, so it's important to stay in the know.
Do you know which of your employees are exempt from overtime protections and which aren't? It's an important question, and, in recent history, the answer seemed like it was about to change. Now, since the U.S. Department of Labor (DOL) has indicated it will begin new discussions around overtime rules, it seems like the rules could change again.
Currently, overtime laws are governed by the Fair Labor Standards Act (FLSA) and administered by the DOL. While the rules might soon be subject to change, the last failed regulatory shift is evidence that you can never count on anything until it is finalized. Here's a look at the current lay of the land, what compliance looks like, and what risks you're taking if you fail to abide by the rules.
Overtime rules today
The current rules governing overtime are administered by the DOL, which sets out the conditions that determine when overtime is paid, the rate at which workers earn overtime pay, and which classifications of employee are exempt from overtime protections under the law. [Interested in time and attendance software to make sure you're being compliant with the law? Check out our best picks.]
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Overtime and regular rates
The current rules on overtime pay state that unless an employee falls into an exempt category, they must receive overtime pay for any hours worked beyond 40 in one workweek. That overtime pay must be no less than time and one-half their regular rate of pay. There is no limit of overtime hours an employee can work so long as they are compensated properly.
A workweek is defined under the law as any fixed and regularly recurring period of 168 hours, which equates to seven consecutive 24-hour days. Any time worked by a nonexempt employee in that period must be paid at the regular rate of time and one-half pay.
Those rules are clear enough, but what exactly is a nonexempt employee? The DOL currently considers several classifications of employee exempt from overtime protections, meaning they can work beyond 40 hours in a workweek without being entitled to that time and one-half pay bump.
- Executive: Executive employees are those compensated on a salary basis at a rate no less than $455 per week. Their primary duty must be managing the company or a recognized department or subdivision of the company. They must also regularly direct the work of at least two other full-time employees. Finally, they must have the authority to hire or fire other employees, or at least influence over the hiring and firing process.
- Administrative: Administrative employees are those compensated on a salary or fee basis at a rate no less than $455 per week. Their primary duty must be the performance of office or non-manual work related to the management of general business operations of the employer or clients. Finally, the employee's primary duty must include the exercise of discretion and independent judgment in significant matters.
- Professional: Professional employees are those compensated on a salary or fee basis at a rate no less than $455 per week. Their primary duty must be the performance of work requiring advanced knowledge, defined as work that is predominantly intellectual in character and requires the consistent exercise of discretion and judgment.
- Computer-related: Computer employees are those compensated either on a salary or fee basis at a rate no less than $455 per week or, if compensated on an hourly basis, no less than $27.63 an hour. They must be employed as a computer systems analyst, programmer, software engineer or similarly skilled worker. Their primary duties must include the application of systems analysis techniques and procedures or the design and development of computer systems or programs.
- Outside sales: An employee meets the outside sales exemption if their primary duty is making sales, obtaining orders or contracts for services. They must regularly be engaged in their work away from the employer's place of business. Salary requirements do not apply to the outside sales exemption.
Penalties for noncompliance
The primary risk an employer runs for failing to comply with overtime law comes from employee lawsuits.
"Believe it or not, these overtime lawsuits can be crazy expensive and detrimental to businesses," said Patrick Adcock, a marketing analyst for TSheets.
For FLSA violations, employers could be required to provide back pay to the impacted employees, as well as pay a penalty called liquidated damages, which is equal to the amount of back pay owed. Those numbers could add up fast, making the cost of noncompliance doubly expensive as simply complying in the first place.
"The problem comes when an employer does it wrong for a long time, or for multiple employees," said Rhamy Alejeal, CEO of Poplar Financial. "If you are making a mistake, and you do it for a while, the cost to correct that by paying the employee up, plus interest and penalties, becomes quite large very quickly."
Enforcement doesn't just come in the form of lawsuits. The DOL could also uncover violations through its Wage and Hour Division. Willful violations of FLSA carry fines up to $10,000 and even the possibility of imprisonment for repeated willful violations.
The potential rule change
Two years ago, it looked as if the Obama administration's DOL was going to revise the rules governing exemption to expand the number of employees in the U.S. who would qualify for overtime protections under the law. The proposed rule change would have added 4.2 million workers to the list of employees eligible for overtime pay by loosening exemptions and increasing the pay threshold for eligibility from $455 per week to $913 per week. In other words, employees making a salary of $47,476 would now qualify for overtime protection under the law.
Many businesses began scrambling to adjust their policies accordingly, often changing salaried employees to an hourly wage or reassigning their duties. In the end, it didn't matter. With the change of administrations, the DOL scrapped those rules, leaving the existing regulations in place.
However, when announcing the agency rule list for spring 2018 on May 9, the Trump administration's DOL revived conversation around the overtime rules when it signaled it would be revisiting the regulations. No proposed rules have been announced yet – the agency said we should expect those later this year – but it appears that the new discussion will focus on different aspects of the overtime rules from the previous proposal governing exemptions and pay thresholds.
The DOL's announcement merely noted it would "clarify, update and define regular rate requirements," which suggests it has more to do with how much overtime must be paid to employees than with who qualifies for overtime pay and when. Exactly what changes the agency proposes, if any, remains to be seen.
Don't forget state law
The overtime rules listed above are the federal minimums. That means they are an absolute floor. States can and do implement more stringent overtime protection laws, so depending on which state you live in, you might be required to pay more overtime more often. Failure to do so could result in penalties assessed by the state government.
"Some states are more strict than others," Alejeal said. "[Some states require] overtime for more than eight hours in a day, instead of more than 40 hours in a week. But as long as you know the laws, they are normally pretty easy to comply with."