How is Overtime Paid? A Small Business' Guide to Overtime Laws

How is Overtime Paid? A Small Business Guide to Overtime Laws

Are you at a loss wondering, "How is overtime paid?" Find out everything you need to know in our comprehensive guide.

UPDATE:  Effective January 1, 2020, salaried employees should earn $684 per week (or $35,568 per year).  Please click HERE for updated information.

Of course, you already know to pay your employees at least the minimum wage. But the laws surrounding overtime are complex and quickly become confusing.

Employees who work longer than normal hours are dedicating extra time to help you continue building success, so you want to make sure you do right by them. Plus, it's important to know the overtime laws to prevent legal trouble for yourself and your business.

If you're wondering how is overtime paid, you've come to the right place! In this guide, we'll tell you everything you need to know about federal overtime laws and how they pertain to your state.

Overtime Laws and Regulations

Although there are state and federal laws set in place that say employers must pay overtime to their employees, not all employees are entitled to this pay. Those who are not eligible are exempt employees.

Not only are exempt employees not eligible for overtime, they are also excluded from minimum wage laws. Instead of receiving an hourly wage, they get paid a salary. It is common for those in sales positions, executives, and supervisors to fall into the exempt category.

Keep in mind that salaried employees should earn at least $455 each week. And regardless of how many hours a salaried employee works or even the quality of the work they do, they should always make the same amount of money weekly.

The only time the employer isn't required to pay salaried employees this way is if the employee is out of work for an entire day.

On the other hand, the employees who do qualify for overtime are nonexempt employees.

The Fair Labor Standards Act (FLSA) states that nonexempt employees have to be paid the federal minimum wage amount or more for each hour they work.

Additionally, those who are nonexempt receive overtime pay. The required overtime rate is the employees' regular hourly rate plus half.

Here's an example of how it works: If you have an employee who regularly makes $20 an hour, their overtime rate will be $20 plus half, which is $10. So, for each hour of overtime, you're required to pay at least $30.

How is Overtime Paid?

Overtime pay is calculated based on the number of hours a nonexempt employee works per week, not per day. In the majority of cases, nonexempt employees work 40 hours each week, which is usually broken into 8 hours each day for 5 days.

There is often confusion surrounding overtime pay for the week versus the day. So, let's say for example that an employee works for 12 hours one day and 4 hours the next day. For the remaining three days in that week, they work their normal 8-hour shift.

This means that the employee will end up with a total of 40 hours at the end of the week. So, they will not receive overtime pay regardless of the long 12-hour shift they took.

When something like this happens, the employee is usually agreeing to work a longer shift to make up for needing time off for personal reasons like doctor's appointments.

Exceptions by State

Although the example above is pretty standard, a small number of states have exceptions to this rule.

In California, employees get paid overtime when they work more than 8 hours in a day or if they work more than 6 days in a week. The employees receive time and a half for any hours that go beyond 8 in a day and for the first 8 hours on their seventh day of working consecutively.

Additionally, employees who work more than 12 hours in a single day are entitled to double pay just as they are if they work more than 8 hours on the seventh day they've worked in a week.

In Alaska and Nevada, employees collect overtime pay when they work more than 8 hours in a day. While Oregon says that its manufacturing workers are given overtime after working for 10 straight hours.

In Colorado, employees are only paid daily overtime for work days over 12 hours long. And like California, those working in Kentucky get paid overtime on their seventh workday in a given week.

Does Your Company Have to Pay Overtime?

Because there are many factors that determine overtime laws and regulations, it's important that you know the specific details regarding whether your business is required to pay for overtime. The first step in doing this is to find out if you're covered by the FSLA.

Generally speaking, businesses that make $500,000 or more in annual sales are covered. But if you're a smaller company that isn't producing as much, it doesn't mean you aren't covered.

If you have employees who work in interstate commerce (they do business in multiple states) you're required to pay overtime. For employees to work in interstate commerce, they aren't necessarily traveling from one state to another for work.

Things like sending mail to another state, handling products that came from or will go to another state, sending mail to another state, and making phone calls to another state are all actions that fall under the interstate commerce rule.

Lastly, small businesses that aren't covered by the FSLA sometimes operate in states with an overtime law that you will need to adhere to. To be as safe and by the book as possible, contact the labor department in your state to learn about your specific situation.

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^{Disclaimer: HR Branches provides general information about Human Resources. Please note that the information provided, while reliable, is not legal advice. Please seek legal assistance, or assistance from State, Federal, or International governmental resources, to make sure your legal interpretation and decisions are correct for your location and circumstances. The purpose of this information is for guidance, ideas, and assistance on general HR matters.}