While overtime pay isn’t necessarily desirable for employers, there are times when it is necessary, especially for small businesses or startup companies who are working with a limited staff and an unlimited amount of work. For employers who fit into this category, it is important to ensure that employees are properly compensated in compliance with labor laws, specifically the Fair Labor Standards Act (FLSA). The FLSA designates who should be paid for additional hours, along with the pay rate to be applied to those hours.
Since it’s critical for employers to establish an overtime policy, properly classify employees, and document hours worked, here are some overtime basics that every employer should know.
Who Receives Overtime Pay?
An FLSA requirement is that employers properly classify employees as exempt or non-exempt. According to the Fair Labor Standards Act, only non-exempt employees qualify for overtime pay. Although proposed new regulations under the Obama administration would have nearly doubled the salary threshold to be exempt from overtime pay, that rule was struck down by a judge in 2017. Under the current FLSA rules, the minimum salary for exempt workers remains at $23,660 per year ($455 per week). There are two other components required to be met to qualify for the overtime exemption in addition to the salary level–salary basis and job duties tests.
A second category of exemption is labeled the Highly Compensated Employee (HCE), which allows an employee performing office or non-manual work to be exempt if they consistently perform at least one of the duties of an exempt executive (managerial), administrative, or professional employee as defined by the law. The proposed rule would have increased this amount to $134,004 to qualify as an HCE. Because the rule was not allowed to move forward, the current HCE salary level remains at $100,000.
The Importance of an Overtime Policy
Every employer should have a solid overtime policy in place and easily accessible to employees. Without question, a company’s overtime policy should comply with all local, state, and federal laws and regulations. Since these regulations can look different from state to state, it is imperative to stay informed on any changes within the state in which the employer is operating. Employers are also required by the FLSA to maintain efficient records for regular and overtime pay, which is not only necessary for compliance but can also be beneficial for future budgeting and staffing planning.
Got questions about overtime pay rules or need assistance with establishing an overtime policy? Our dedicated professionals at LBMC Employment Partners are ready to help. Contact us today to learn more!