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February 24, 2023

Do I have to pay overtime to my employees?

Who gets paid overtime and how much?

An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work. 

The federal overtime provisions are contained in the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on such days.

What is considered a workweek?

The FLSA applies on a workweek basis. An employee’s workweek is a fixed and regularly recurring period of 168 hours or seven consecutive 24-hour periods. It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees. 

Note: Averaging hours over two or more weeks is not permitted.

When must overtime be paid to employees?

Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.

What earnings are included?

The employees regular rate of pay cannot be less than the minimum wage. The regular rate includes all remuneration for employment except certain payments excluded by the Fair Labor Standards Act itself. Payments which are not part of the regular rate include pay for expenses incurred on the employer’s behalf, premium payments for overtime work or the true premiums paid for work on Saturdays, Sundays, and holidays, discretionary bonuses, gifts and payments in the nature of gifts on special occasions, and payments for occasional periods when no work is performed due to vacation, holidays, or illness.

Earnings may be determined on a piece-rate, salary, commission, or some other basis, but in all such cases the overtime pay due must be computed on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment (except for the statutory exclusions noted above) in any workweek by the total number of hours actually worked.

Note: Work not requested but suffered or permitted to be performed is work time that must be paid for by the employer. For example, an employee may voluntarily continue to work at the end of the shift to finish an assigned task or to correct errors. The reason is immaterial. The hours are work time and are compensable.

Can overtime pay be waived?

In short, no. The overtime requirement may not be waived, not even by agreement between the employer and employees. An agreement that only 8 hours a day or only 40 hours a week will be counted as working time also fails the test of FLSA compliance. An announcement by the employer that no overtime work will be permitted, or that overtime work will not be paid for unless authorized in advance, also will not impair the employee’s right to compensation for compensable overtime hours that are worked. Therefore, employers must be intentional and aware, as it relates to time management and the productivity of its employees. 

Conclusion

Time and labor management is a critical aspect of any business, especially if your employees are paid hourly. Failure to manage this efficiently can end up affecting payroll and other important processes. If your employees are on an hourly wage structure, it is highly critical to keep track of when they clock in and out, even if it’s just for a break.

This is why every business, large or small, should choose the right partner to provide essential services such as Payroll, Time and Labor Management and more. You can rest assured that those functions will be made much easier with our custom solutions at Tesseon.

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Disclaimer: The information provided on this blog page is for general informational purposes only and should not be considered as legal advice. It is advisable to seek professional legal counsel before taking any action based on the content of this page. We do not guarantee the accuracy or completeness of the information provided, and we will not be liable for any losses or damages arising from its use. Any reliance on the information provided is solely at your own risk. Consult a qualified attorney for personalized legal advice.

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