Overtime Tracking & Compliance
With new regulations and laws coming into effect, overtime tracking has never been more important. Employers must accurately compensate employees for overtime hours, or potentially face significant legal and financial repercussions.
What is Overtime?
Overtime is generally the amount of time worked beyond someone's scheduled "normal working hours."
Normal Working Hours, or regular hours, can be established by legislation. And in the United States, the Department of Labor (DOL) mandates that nonexempt employees are eligible for overtime when time worked in a week exceeds 40 hours.
How Does Overtime Work?
In the US, the federal labor laws regarding overtime provisions are detailed 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.
What Counts as a Workweek?
Workweeks, according to the FLSA, are made up of seven consecutive 24-hours periods that add up a to cumulative and recurring 168 hours.
Penalties for Non-Compliance
Failing or refusing to pay overtime to eligible employees can result in lawsuits, fines, or even imprisonment. Penalties for failing to pay overtime vary by severity of offense, frequency of offense, and by state or geography.
Which Employees Receive Overtime Pay?
The new overtime law, slated to go into effect December 1, 2016, makes millions of Americans eligible for paid overtime for any hours worked over a regular 40-hour workweek. (Currently, most employee who are paid under $455 per week qualify for overtime.)
After the law is enacted, many employees who are paid under $913 per week will qualify for overtime. However, there are a exceptions to the new rules for "white collar" workers that hold certain positions. These positions include administrative, executive, professional, computer professional, outside sales, and highly compensated roles.
Which Employees Are Exempt from Overtime?
To be considered exempt under the new federal overtime regulation, employees must be paid at least $913 a week, be paid the same salary regardless of their output of work, and the duties they perform regularly must meet their position definition:
The employee’s primary duty must be non-manual work related to management or general business operations of their employer or employer’s customers. Their work must include exercise of discretion and independent judgement with respect to matters of significance.
The employee’s primary duty must be managing the enterprise, a recognized department of the enterprise, or a subdivision of the enterprise. They must regularly direct the work of at least two full-time employees. They must have the authority to hire and fire other employees or have significant say in the change of employees’ statuses.
The employee’s primary duty must be work that requires advanced knowledge, is intellectual in character, and requires constant exercise of discretion and judgement. This advanced knowledge must be in a field of science or learning. This advanced knowledge must be acquired by prolonged course of intellectual instruction.
*Please note, certain employees, such as doctors, teachers, and lawyers, are not subject to these exemptions.
The employee’s primary duty must be work that requires invention, imagination, originality, or recognized as artistic or a creative endeavor.
The employee must be a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in one of the following fields:
- The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
- The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
- The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
- A combination of the aforementioned duties, the performance of which requires the same level of skills.
The employee’s primary duties must be making sales, obtaining orders contracts for or services facility use with consideration. They must be regularly engaged away from the employer’s place of business.
The employee must perform office or non-manual work and be paid total annual compensation of $100,000 or more.
How Do I Calculate Overtime?
With proper time tracking, it should be easy to comply with federal overtime regulations and pay out the appropriately tracked and calculated overtime.
- Track the hours worked during the recurring FLSA-defined workweek
- Determine the regular hourly pay rate for a 40-hour workweek
- Pay out 1.5x the normal rate for any time logged in excess of 40 hours
Bob works 55 hours this week. He is paid $20 an hour. How much does he need to be paid under FLSA overtime rules?
Regular pay rate: $20/hour
Premium pay rate: $20/hour x (0.5 rate multiplier) = $10/hour more
Total time worked: 55 hours
Premium time worked: 55 - 40 normal hours = 15 overtime hours
Regular pay: 55 hours x $20/hour = $1,100 normal pay
Premium pay: 15 overtime hours x $10/hour premium rate = $150 overtime pay
Total pay: $1,100 + $150 = $1,250
Do Bonuses Affect Overtime Pay?
In short, bonuses do count as part of the minimum salary requirement for workers, but only up to a point. Nondiscretionary bonuses (bonuses that are known by the employee for meeting goals of some kind during a period, not surprise bonuses, which would not count), incentive payments, and commissions can count as up to 10% of the minimum weekly salary of $913 required to eclipse overtime payment territory.
These payments can be made the next quarter if an employee was not compensated fully for the previous one, which allows employers some wiggle room and space to correct their mistakes and still comply with law.
For highly compensated employees, as long as they are paid at least $913 per week, bonuses can cover the remaining portion totaling at least $134,004 per year (the minimum requirement for highly compensated status).
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