North Carolina Overtime Laws

April 11th 2024

The overtime laws in North Carolina aim to safeguard employees and guarantee fair compensation for their work beyond regular work hours. As per the regulations outlined in North Carolina Labor Law, employers are required to compensate employees who work beyond the standard 40 hours per week.

This article offers valuable insights to help you understand the overtime regulations in North Carolina.

This article covers:

North Carolina Overtime Rates

According to the North Carolina Department of Labor, an employer must pay its employees 1.5 times the employee’s regular rate for all hours worked beyond 40 in a workweek. The minimum wage and overtime pay are based on the hours worked each workweek and not on the number of hours worked each day.

Currently, the minimum hourly rate in North Carolina is $7.25. If the worker exceeds 40 hours in a workweek, the succeeding hours are to be paid at a rate of $10.88 per hour.

A private sector employer cannot give compensatory time off to its non-exempt employees in exchange for their overtime hours. Non-exempt employees must be paid 1.5 hours of overtime. Being paid on a salary basis does not automatically exempt an employee from overtime pay rates. The employer must determine if the employee is a salaried-exempt employee before not being granted overtime pay.

Read more about North Carolina Salaried Employees Laws.

Overtime Entitlement in North Carolina

The federal law categorizes all employees as exempt or non-exempt. Exempt employees are not entitled to overtime pay, whereas non-exempt employees are able to receive payment for work beyond their regular hours.

Employees who are more likely to be categorized as non-exempt are those with a job that generally requires them to work longer hours. These employees are at risk of being overworked or exploited and, as a result,  are eligible for overtime pay.

Employees who earn more than $684 each week may be categorized as exempt employees. However, they must meet other qualifications outlined in the Code of Federal Regulations (CFR) 541.

Compensatory Time in North Carolina

Only government employees or public agencies are allowed to provide compensatory time, when employees receive time off rather than cash payment for their overtime hours. An employee is entitled to 1.5 times the amount of time worked beyond the 40-hour work period. The following provisions apply to compensatory time:

  • Compensatory time can be accumulated up to a maximum of 240 hours. Any overtime worked above the accumulated compensatory time should be paid in cash on the next regular paycheck.
  • Employers should allow for compensatory time to be utilized as soon as possible.
  • Employers cannot deny an employee’s request for compensatory time off unless the schedule unduly disrupts agency operations.
  • Compensatory time off should be taken before any vacation or bonus leave. However, retirees who need to use all their vacation leave before retirement are exceptions to this rule.
  • Compensatory time should be taken within 12 months from the work being performed. If not taken within the period, the accumulated time should be paid out in the next paycheck.
  • If the employee resigns, the overtime compensatory time should be paid in a lump sum, along with any unused vacation leave.
  • If an employee transfers to an exempt FLSA position or another agency, compensatory time should be paid in the current or next regular pay period.

However, these provisions do not apply to law enforcement, fire protection, and in-residence employees. These groups of employees have a Special Provision for Compensatory Overtime Policy.

Calculating Overtime with Commission in North Carolina

Commissioned sales employees in North Carolina have their own set of regulations. If employees meet the following criteria, they can be considered exempt from overtime pay:

  • Employees earning 75% of their sales in retail or service.
  • Workers making more than 1.5 times the applicable minimum wage for each hour worked during the week when the overtime was worked.
  • Individuals earning over 50% of their total earnings from commission. Employers must consider a time period to determine if the employee made enough commission. Employees paid only by commission or who make more in commission than in salary or hourly wages will automatically meet this criterion.

However, if the commission-based employees are considered non-exempt, their overtime calculation is as follows:

Regular rate = total hours x hourly rate + workweek equivalent of the bonus and/or commission, divided by the total hours of the workweek.

50% of this regular rate is the payable rate for each overtime hour.

Overtime for Tipped Employees in North Carolina

In North Carolina, tipped employees are paid at least $2.13 an hour, as long as the employers will compensate for the difference between the tip credit and the minimum wage. Tipped employees must still receive at least $7.25 per hour.

For overtime pay purposes, employers must calculate the 1.5 overtime pay based on the tipped employee’s regular pay rate. This includes the cash wage paid to the employee and the tip credit counted as wages for the employee, which must equal a total of $7.25. However, employers are permitted to take credit for a certain amount of tips from their employees toward the employer’s payment of the minimum wage.

Let’s use this example: A tipped employee is paid at the minimum cash wage rate of $2.13 an hour and earns $15 an hour in tips for the week. If the employee exceeds 20 hours during the work week, how much overtime compensation will the tipped employee receive?

Regular Pay 40 hours x $7.25 $290
Overtime Rate 20 hours x $10.88 $217.60

Since the employer is allowed to take credit for a certain amount of tips, from the $15 per hour, the employer takes credit for $5.12. Since the employee worked for a total of 60 hours,

60 hours x $5.12 per hour tip credit = $307.20

So, from the $507.60 gross pay, $307.20 is deducted, making the employer entitled to pay $200.40 to the tipped employee.

Overtime for Salaried Employees in North Carolina

North Carolina follows the overtime regulations under the Fair Labor Standards Act (FLSA).

According to the FLSA, employees who work beyond 40 hours in a workweek are entitled to overtime compensation. Overtime pay is 1.5 times the regular rate. Salaried employees have to be categorized as exempt or non-exempt to be considered eligible for overtime pay.

Employees who are classified as bona fide executive, administrative, and professional employees are exempt from overtime compensation.

Overtime Exceptions and Exemptions in North Carolina

According to federal law, employees are classified based on their earnings, job responsibilities, and salary basis. Here are the main types of exemptions in North Carolina:

  • Executive
  • Administrative
  • Professional
  • Computer Employee
  • Outside Sales
  • Highly-Compensated Employees

These individuals earn more than $684 per week and perform supervising, managing, and non-manual labor work, categorizing them as exempt employees.

Penalties for Unpaid Overtime in North Carolina

Some employers avoid paying overtime wages and might try to withhold compensation unlawfully. This includes:

  • Misclassifying employees as exempt
  • Unlawfully averaging hours

Employers who are proven to have willfully violated the overtime pay requirements face civil monetary penalties. If the overtime wage claim is successful, employees are entitled to receive the following:

  • Attorney fees
  • Court costs and expenses
  • Liquidated damages

According to the FLSA, liquidated damages must match the total unpaid wages paid to the employee. For example, if the employee wins a $5,000 claim, the employee is eligible for an additional $5,000 in liquidated damages.

Statute of Limitations for Unpaid Overtime Claims in North Carolina

In North Carolina, the statute of limitations on filing a legal action to recover unpaid overtime wages is two years. Unless the employer is proven to have violated willfully, then the statute of limitations is extended to three years.

For example, if a dispute between an employee and employer over the nonpayment of overtime wages happened three years ago, the court would likely bar the wage claim as the employee waited for more than two years to file a claim.

Employees have the right to claim unpaid overtime compensation in North Carolina. Still, legal action has to be taken quickly to get the total value of the overtime wage theft claim.

Legal Cases Relating to Overtime Compensation in North Carolina

Food Distribution Company Agrees to Pay Workers Over $136,000

In the case of Agency of Wage and Hour Division v. El Club Mexicano Inc., the national food distribution company based in Asheboro, North Carolina, was investigated by the US DOL Wage and Hour Division for violations of the FLSA. The investigation revealed that the company had misclassified employees as independent contractors and failed to pay them minimum wage or overtime. Employees were paid based on a piece-rate system, which often resulted in wages below the mandated minimum wage of $7.25 per hour.

Additionally, the company neglected to pay overtime to employees who worked more than 40 hours per week, continuing to compensate them solely based on piece rates. The investigation also found that the company had hired minors aged 14 and 15 to operate equipment prohibited for use by workers under 18.

Court Decision: El Club Mexicano Inc. agreed to pay $136,266 in back wages and damages to 47 affected employees. This sum covered $68,133 in minimum wage and overtime back wages, with an equal amount awarded in damages. Additionally, the company was assessed $6,638 in civil money penalties for child labor violations. The employer committed to complying with all FLSA provisions in the future and agreed to pay all back wages, damages, and penalties in full.

Key lessons from this case:

  • Employers must accurately classify workers as employees or independent contractors to ensure compliance with labor laws. Misclassification can lead to wage and hour violations, as seen in this case.
  • Employers must pay employees at least the minimum wage and provide overtime compensation for hours worked beyond 40 in a workweek. Paying employees based on piece rates does not absolve employers of their obligation to meet these requirements.
  • Employers are obligated to guarantee that all FLSA regulations are followed and to commit to future compliance with labor laws.

Learn more about North Carolina Labor Laws through our detailed guide.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.