Do your small business employees ever work over forty hours a week? They could be subject to federal overtime pay rules. Learn about the overtime rules so you can meet the demands of business while staying compliant with the law.
What is overtime pay?
There is no limit to the number of hours employees aged 16 and over can work in a workweek under the Fair Labor Standards Act (FLSA). But certain employees covered by the act must be paid overtime for hours worked beyond forty in a given workweek. The overtime rate should be at least one and one-half times their standard pay rate. This “time and a half” rate of pay is referred to as “overtime” pay.
Work performed on weekends or holidays is not in itself considered overtime work. But it would only count as overtime work if working on these days causes an employee to exceed forty hours in a week.
You don’t need to use a time clock to track the overtime hours your employees work. But you should maintain some form of recordkeeping to track overtime hours.
How do overtime rules affect small businesses?
If your business is covered by the FLSA, you must pay an overtime-eligible employee in “time and a half” pay for overtime hours. Covered businesses are generally those that have an annual gross volume sales or business of $500,000 or more. But some businesses are covered by the act even if they don’t meet the gross volume of sales test. These businesses include hospitals, schools and public agencies.
Who is entitled to overtime pay?
Only covered, non-exempt employees must be paid overtime pay. Non-exempt employees are those that are not exempt from the FLSA overtime pay rules. Exemption status is assessed by a combination of factors including the employee’s job responsibilities and earnings.
Some states also have put in place their own overtime laws. This might make an employee covered by both state and federal overtime pay rules. If this the case, the employee is entitled to overtime pay according to whichever standard would provide the higher pay rate.
Who is exempt from the overtime rules?
Employees classified as “exempt” are exempt from the overtime pay rules. This means you are not required to pay these employees overtime. Examples of exempt employees include:
- Farm workers
- Railroad or air carrier employees
- Employees of movie theaters
There is an additional category of exemptions known as white-collar exemptions. To qualify for a white-collar exemption, a white-collar employee usually must:
- be salaried.
- be paid more than $913 per week ($47,476 annually for a full-year employee).
- perform mainly executive, administrative or professional tasks.
You should check with your local Wage and Hour Division office to verify whether an employee is exempt or non-exempt from the FLSA overtime pay rules.
Are contractors subject to overtime rules?
The FLSA provides labor protections to full- and part-time employees of eligible enterprises. It does not cover contractors. Therefore, it does not require overtime pay for contractors or independent contractors. However, it’s important not to misclassify an employee as an independent contractor simply to avoid paying overtime pay. The misclassification of workers can have legal and financial implications.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.