There are both federal and state laws that affect wage and overtime claims. The Fair Labor Standards Act (FLSA) requires enterprises engaged in interstate or foreign commerce and state and local government to pay overtime of 1½ times an employee's regular rate of pay for hours worked in excess of 40 hours in a workweek, unless the employee is considered exempt from overtime. FLSA does not require that overtime be paid for hours worked in excess of eight hours per day or on weekends or holidays. As a general rule, non-exempt employees must be compensated for all hours of work that management knows of, or has reason to know of, even if the employer did not request or authorize the time or type of work performed.
States are permitted to provide workers greater overtime protections than those offered by FLSA. If an employment situation falls within the jurisdiction of both state and federal law, then the employer must comply with the state or federal law that sets the higher standard. In most cases, only public sector employees are permitted to receive compensatory (comp) time off in lieu of monetary overtime compensation.
The following are examples of employees exempt from the FLSA overtime pay requirements only. (State laws also apply to employment subject to this Act. When both this Act and a state law apply, the law setting the higher standards must be observed.):
- Certain commissioned employees of retail or service establishments;
- Auto, truck, trailer, farm implement, boat or aircraft salespersons employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers;
- Auto, truck, or farm implement parts clerks and mechanics employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers;
- Railroad and air carrier employees, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans;
- Announcers, news editors and chief engineers of certain non-metropolitan broadcasting stations;
- Domestic service workers who reside in their employers' residences;
- Employees of motion picture theaters; and
Certain employees may be partially exempt from the overtime pay requirements. These include:
- Employees engaged in certain operations on agricultural commodities and employees of certain bulk petroleum distributors;
- Employees of hospitals and residential care establishments which have agreements with the employees that they will work 14-day periods in lieu of 7-day workweeks (if the employees are paid overtime premium pay within the requirements of the Act for all hours worked over eight in a day or 80 in the 14-day work period, whichever is the greater number of overtime hours); and
- Employees who lack a high school diploma, or who have not completed the eighth grade, who spend part of their workweeks in remedial reading or training in other basic skills that are not job-specific. Employers may require such employees to engage in these activities up to 10 hours in a workweek. Employers must pay normal wages for the hours spent in such training but need not pay overtime premium pay for training hours.
Overtime is work done by hourly employees beyond the regular work hours per week. Any work over forty hours per week for an hourly worker is considered overtime. Overtime and overtime compensation are provided for under the federal Fair Labor Standards Act of 1938. It is required under the FLSA that employers pay time-and-a-half to employees working more than forty hours per week or 150 percent of the worker's salary for those hours exceeding the weekly average.
EXEMPT AND NON-EXEMPT EMPLOYEES
U.S. labor law distinguishes between "exempt" and "non-exempt" employees regarding overtime. Exempt employees do not have to be paid overtime if they work more than 40 hours a week. According to the FLSA, members of this class of employee include workers "employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) or in the capacity of outside [salesperson]." Any worker employed in the above categories who meets Department of Labor salary and duty tests is exempt from receiving overtime pay regardless of the number of hours he or she works.
In some businesses, employees attend to a wide variety of tasks that may include a blend of "exempt" and "non-exempt" duties. In these instances, their overtime status is dictated by their "primary duty" to their employer. Time spent on each task is an important but not decisive factor in determining exemption status. Instead, federal regulations dictate that the decisive factor is "the relative importance of the [exempt] duties as compared with other types of duties … and the relationship between [the employee's] salary and the wages paid other employees for the kind of nonexempt work performed." For instance, the Code of Federal Regulations notes that "in some departments, or subdivisions of an establishment, an employee has broad responsibilities similar to those of the owner or manager of the establishment, but generally spends more than 50 percent of his time in production or sales work. While engaged in such work he supervises other employees, directs the work of warehouse and deliverymen, approves advertising, orders merchandise, handles customer complaints, authorizes payment of bills, or performs other management duties as the day-to-day operations require. He will be considered to have management as his primary duty." The Code of Federal Regulations also includes tests that can be used to determine the primary duties of other "white-collar" workers, including executives, professionals, computer programmers, and administrative personnel.
On April 23, 2004, the U.S. Department of Labor introduced new regulations relating to exemptions. An article in Healthcare Financial Management offered the following summary and the rationale behind the rule change. "The new rule, effective August 23, 2004, updates the regulations defining exemptions for 'white collar' executive, administrative, and professional employees. One of the most significant changes included in the rule involves the minimum salary level requirements, last updated almost 30 years ago. According to the rule, overtime protection is guaranteed for all workers earning less than $455 per week ($23,660 annually). Under original FLSA regulations, the minimum salary level for exemption was $155 per week ($8,060 annually)."
DECIDING TO USE OVERTIME
Businesses with seasonal peaks, with quotas and deadlines, or with the possibility of rush orders, will at some point probably not be able to meet staffing needs with the regular hours worked by employees. It is at these crisis points that overtime becomes an invaluable tool for the employer.
Most business experts, however, counsel owners and managers to use overtime sparingly if possible. The ideal use of overtime is when employees are willing to work longer hours for increased pay, and the employer needs qualified, trained individuals who will not need excessive supervision while tackling an increased work load. An employer should not, however, rely on employees working many more hours per week to routinely make up for work not accomplished during the regular work week. If this is the case—if overtime becomes essential to the performance of a business, even during regular operating scenarios—there may be other factors, such as poor compensation, morale, or inadequate staffing levels, to be considered.
One serious consideration often cited in the routine use of overtime is the effect it can have on employees' regular production. Increased work hours during one period may lead to increased absenteeism during others, due to family commitments that were put off during "crunch" periods or to illness exacerbated by stress. Family conflicts are also a common consequence and manifest themselves in higher levels of stress, alcohol and drug use, and absenteeism. In addition, employee productivity during regular business hours often undergoes a major downturn after periods of extensive overtime.
All overtime should be authorized by a manager or supervisor, preferably in writing. Consideration should be given to tracking the work accomplished during overtime hours; this ensures that employees are continuing to be productive at the increased pay rate, even with the stress of longer hours and increased sales or other pressures. Tracking what work is done on overtime will also aid the owner or manager of a business to better plan for staffing needs in the future.
ALTERNATIVES TO OVERTIME PAY
Because overtime can become very expensive, and can sometimes be draining for regular employees, some businesses have embraced alternate plans of human resource management.
Expanding workforce size. The first determination to be made is whether the amount of overtime used throughout the year is enough to justify the hiring of additional staff. This step should be very carefully considered, however, because while overtime is expensive, so are the costs (salary, payroll taxes, social security, benefits) associated with hiring additional employees.
Temps. Another alternative to overtime is to utilize temporary workers. This can be done independently by the owner or manager, or through a temporary employment agency. Depending on the task (and how much training and supervision is required), the temporary employee can save businesses significant overtime expenses. This alternative can be particularly attractive if increased staffing needs are seasonal and predictable, so that temporary employees can be hired in advance.
Stock options. Many employers have begun offering their workers stock options as compensation in lieu of actual overtime pay. In 1999 employer rights to offer stock options were codified into law with the passage and signing of the Worker Economic Opportunity Act. This act amends the Fair Labor Standards Act to exclude profits from stock options or purchase plans from the calculation of non-exempt employee's overtime if various requirements are met (such as full disclosure of terms and voluntary participation). Supporters of this new law contend that it will allow employers to offer stock options as incentives to hourly workers while safeguarding employees against businesses that might try to disseminate risky stock options in place of overtime pay.
EMPLOYEE REACTIONS TO OVERTIME
Many employees welcome the opportunity to augment their regular salaries with overtime pay. Some businesses can effectively use overtime as a kind of voluntary bonus: if the employees are willing to put in the added hours, they will be rewarded with increased pay. Because of the strong positive feelings many employees have about the opportunity to earn overtime pay, employers should carefully weigh the pros and cons of hiring temporary help; regular employees will recognize the loss of overtime, and morale may suffer, particularly if overtime has become an integral part of the business cycle.
But the prevailing feeling among many business owners and executives is that employees are placing ever greater value on leisure/family time, and that they are willing to make some sacrifices in the realm of compensation in order to enjoy personal interests. In addition, analysts point out that families that have both parents in the work force may not value overtime as much as employees of the past. Employers should remain sensitive to employees' needs and responsibilities outside of the workplace, and should recognize that employees may not always be willing to volunteer for overtime.
In the medical field especially, affecting nurses particularly owing to shortages in this healthcare specialization, mandatory overtime is often imposed on employees. Hospital like to staff 12-hour shifts with the consequence that work-day overtime (at minimum) becomes mandatory. Lonnie Golden and Barbara Wiens-Tuers, writing for Labor Studies Journal, pointed out that the requirement extends more widely beyond health care. Citing the 2002 General Social Survey (sponsored by the National Science Foundation) they reported that 28 percent of full time workers were exposed to and 21 percent were actually required to work overtime involuntarily. Golden and Wiens-Tuers pointed out that collective bargaining agreements have failed to curb mandatory overtime effectively enough—thus stimulating seven states to curb the phenomenon by law or regulation.
de Graaf, John. Take Back Your Time: Fighting Overwork and Time Poverty in America. Berrett-Koehler, 2003.
"DOL Rule Enhances 'White Collar' Exemption Regulations." Healthcare Financial Management. June 2004.
Federal Register. Department of Labor. "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees; Final Rule." 23 April 2004.
Golden, Lonnie and Barbara Wiens-Tuers. "Mandatory Overtime Work in the United States: Who, Where, and What?." Labor Studies Journal. Spring 2005.
Hart, Robert. The Economics of Overtime Working. University of Cambridge, 2004.
Luna, Michael. "Bedside Nurses and Managers Speak Out on Mandatory Overtime." RN. January 2006.
Schiff, Lisa. "Two More States Say No to Mandatory Overtime." RN. April 2004.
U.S. Department of Labor. "Fair Pay." Available from http://www.dol.gov/esa/regs/compliance/whd/fairpay/main.htm. Retrieved on 25 May 2006.
Hillstrom, Northern Lights
updated by Magee, ECDI