In most industries, working overtime is a regular practice, and many salaried employees exceed their scheduled work hours of 8 hours per day or 40 hours per week at least occasionally. Even working just a few extra hours per week can accumulate a significant amount of overtime throughout the year, and employers are required to compensate their employees for the extra time worked in accordance with labor laws.
To fully understand how overtime pay operates, it is essential to know the eligibility requirements, consequences of non-compliance, and appropriate overtime compensation rates. This guide provides answers to these questions and suggests best practices that organizations can implement when it comes to paying overtime.
This article covers:
- What Exactly Does Overtime Pay Mean in the US?
- A History of Overtime Legislation in the US
- How to Determine US Overtime Pay Obligations for Employers?
- How to Determine US Overtime Eligibility and Exemption for Employees?
- When is US Overtime Paid?
- What are US Overtime Working Hours?
- What Entity is Responsible for Upholding US Overtime Laws?
- What are the Penalties for Not Paying for US Overtime?
- How Do I Calculate US Overtime Pay?
What Exactly Does Overtime Pay Mean in the US?
In the US, overtime pay is a type of remuneration received by eligible employees for working beyond 40 hours per week, usually paid at 1.5 times their regular hourly wage, although there are some exemptions to this rule. The Fair Labor Standards Act (FLSA), which was introduced in 1938 by the U.S. Department of Labor, established the basis for overtime laws in the country. As per the FLSA, some exemptions to overtime pay rule include:
- Employees who earn not less than $684 per week
- Taxi drivers
- Employees at recreational establishments, amusement parks, hotels/motels, and movie theaters
- Executive positions that involve full-time management of 2 or more employees, administrative work related to business operations, management or administrative training, and professional work requiring advanced education such as artists, certified teachers, and IT professionals
- Outside salespersons
Regulations for overtime pay differ from country to country, and even within countries, as some states within the US have more stringent rules regarding overtime pay. Typically, non-exempt employees must receive overtime pay if they work more than 40 hours per week or 8 hours per day or their standard workday, with exceptions such as voluntary overtime.
A History of Overtime Legislation in the US
The Great Depression of 1929 served as a reason to standardize employees’ working hours, as many Americans were experiencing financial difficulties. To address this, President Franklin D. Roosevelt implemented labor law reforms, fulfilling his campaign promises. One of these reforms was the Fair Labor Standards Act, which aimed to establish minimum wage, reasonable working hours, and labor safety regulations.
Then, in 1938, the concept of overtime was introduced through the Fair Labor Standards Act, which marked a significant shift in the average American worker’s situation. Prior to this, employees often had to work long periods ranging from 10 to 16 hours a day to support themselves, given the substandard living conditions.
How to Determine US Overtime Pay Obligations for Employers?
Whether or not an employer is obligated to pay overtime depends on the nature of their business and the employment opportunities they offer. It is possible to verify the employer’s overtime responsibilities by referring to the federal Fair Labor Standards Act, as well as other relevant federal and state laws that apply to their jurisdiction.
How to Determine US Overtime Eligibility and Exemption for Employees?
Determining an employee’s eligibility for overtime compensation depends on several factors, including the nature of their work and the industry they are in. The Fair Labor Standards Act (FLSA) classifies employees as either “exempt” or “non-exempt” from overtime pay.
Non-exempt employees are entitled to receive overtime pay for any extra hours worked beyond the standard work hours. They are typically engaged in routine jobs such as manual labor or customer service and are generally paid by the hour.
In contrast, exempt employees do not qualify for overtime pay and usually hold white-collar positions such as managers, administrators, or professionals. These employees must receive a minimum weekly salary of USD 684.
It’s important to note that independent contractors are not eligible for overtime pay since they are paid for specific tasks, and some industries such as farming, rail, and air also do not provide overtime pay to their employees.
When is US Overtime Paid?
Employers must pay non-exempt employees overtime pay when their weekly hours exceed 40, regardless of whether they work more than eight hours a day, as per the Fair Labor Standards Act guidelines. Nevertheless, some states such as Alaska, California, and Nevada require daily overtime payments if an employee works more than eight hours.
What are US Overtime Working Hours?
The Fair Labor Standards Act defines overtime as the extra hours worked by a non-exempt employee beyond the standard 40-hour workweek of seven consecutive days. For instance, if a non-exempt employee works 50 hours in a week, from Monday to Sunday, the employer must compensate them for 10 hours of overtime. However, it’s still important to check the applicable local laws regarding overtime pay requirements as they may vary depending on the employee’s job role and state regulations.
At times, hours recorded outside of an employee’s regular schedule may be referred to as overtime, even if the employee has not worked more than 40 hours in a week. In such cases, if the employee’s weekly hours did not exceed 40 hours, there is no obligation for employers to pay overtime, as required by the Fair Labor Standards Act. However, some states may require employers to pay overtime for hours worked beyond eight hours in a day. Additionally, some employers may choose to compensate their employees for additional hours worked as a gesture of goodwill, even if not legally required to do so.
What Entity is Responsible for Upholding US Overtime Laws?
The enforcement of overtime regulations under the FLSA is the responsibility of both federal and state divisions of the Department of Labor (DOL). The FLSA is regularly updated to keep pace with the evolving needs of the workforce. If employees have not been paid for overtime, they may file a complaint with the DOL office of their state to recover unpaid wages. In the 2023 fiscal year, the Wage and Hour Division of DOL was able to collect approximately over $274 million in back wages and damages for more than 163,000 workers nationwide. Furthermore, the DOL collaborates with employers to ensure their compliance with the relevant laws.
What are the Penalties for Not Paying for US Overtime?
There are stringent regulations set by the DOL for non-compliance with the Fair Labor Standards Act (FLSA), and companies that intentionally violate the law can face criminal charges and fines of up to USD 10,000. For repeat offenders, imprisonment is also a possibility.
Meanwhile, companies that consistently fail to meet overtime obligations can face fines of up to USD 1,000 per violation. Companies are responsible for covering any unpaid wages and also face liquidated damages, which can amount to double the sum of the unpaid wages, regardless of whether the violation was intentional or not.
How Do I Calculate US Overtime Pay?
According to federal laws, employers are required to compensate their employees for overtime at a rate that is of at least 1.5 times their regular pay rate, commonly known as time and a half. There is no limit to the amount an employee can be paid for overtime. If the work shift is undesirable, employers may choose to pay double or more than the regular pay rate as a form of incentive.
Calculating an employee’s overtime pay involves multiplying their hourly rate by the chosen factor (e.g. 1.5), and then multiplying that result by the number of overtime hours worked. The final step is to add this amount to the employee’s regular pay for a standard 40-hour workweek.
Here’s an example of how this works: Imagine someone who makes $10 an hour and worked 40 hours in one week.
- The regular pay rate would be 40 hours x USD 100 = USD 400.
- Assuming the employee worked an additional 10 hours of overtime during the week, the overtime pay rate would be USD 10 x 1.5 x 10 hours = USD 150.
- The overall payment for that week would thus be USD 400 + USD 150 = USD 550.
This is how overtime is calculated.
Discover more about US State Labor Regulations concerning overtime pay laws to gain a better understanding of the rules in each state.
Important Cautionary Note
When making this guide we have tried to make it accurate but we do not give any guarantee that the information provided is correct or up-to-date. We therefore strongly advise you seek advice from qualified professionals before acting on any information provided in this guide. We do not accept any liability for any damages or risks incurred for use of this guide.
