NOTE FROM ROBIN: In March, I began a series of very basic explanations of the federal laws that govern the workplace. The first installment covered discrimination in general, the second installment covered religious accommodation, and the third installment covered retaliation. Last week, I shifted gears a bit and posted about the minimum wage requirements of the Fair Labor Standards Act. Today’s post will discuss the overtime requirements of the FLSA. If there is a topic that you'd like to see covered in the future, please send me an email or leave a comment here.

For these two FLSA posts, I want to thank Jim Coleman, co-chair of our firm's Wage and Hour Practice Group, for keeping me on the straight and narrow. I could not have written these posts without his substantive expertise and editorial assistance.

The FLSA overtime provisions essentially say that a non-exempt employee must be paid for all hours worked each work week, plus properly calculated overtime premiums for any hours worked in excess of 40.

The “regular rate”

The amount of overtime pay that a non-exempt employee must be paid depends on the employee’s “regular rate.” The regular rate is the employee’s straight time pay for the workweek divided by the number of hours worked in that week. If the employee receives non-discretionary bonuses or shift differentials, those have to be included in computing the regular rate, making the regular rate higher. If the employer uses the “fluctuating workweek” method of compensation, that could make the employee’s overtime premium rate lower.

To keep it simple, let’s say an employee gets $10 an hour, with no bonuses or shift premiums. Her regular rate is $10 an hour. If she works a 40-hour week, her regular rate is $400 divided by 40 (again, $10). If she works a 60-hour week, her regular rate is $600 a week divided by 60 (again, $10). If she works more than 40 hours in a workweek, the hours in excess of 40 would have to be paid at “time and a half” the regular rate – 1.5 times $10, or $15 an hour. Easy peasy. The overtime "premium" is $5 of that $15.

Of course, it isn't always that simple.This Fact Sheet from the U.S. Department of Labor has more information about calculating the regular rate.

Exempt employees under the so-called “White Collar Exemptions” are not entitled to overtime pay, no matter how many hours they work. But, with limited exceptions, they have to be paid their full salary for any workweek in which they perform any work at all.

Exempt versus non-exempt

“Non-exempt” is the default. Most employees are non-exempt, meaning they have to be paid at least the minimum wage for all hours worked plus overtime for any hours worked in excess of 40 in a given workweek. Non-exempt employees can be paid hourly, on a piece rate, on a day rate, on a commission plan, or a salary.

Many employers think that “hourly” means the same thing as “non-exempt” and that “salaried” means the same thing as “exempt.” This is a mistake! Salaried employees can also be non-exempt – think of administrative assistants, receptionists, and the like. Salaried non-exempt employees are still entitled to be paid at least the FLSA minimum wage for all hours worked, and to receive overtime if they work more than 40 hours in a workweek. Also, under the FLSA there are minimum wage and overtime exemptions, and then there are overtime-only exemptions, so you have to understand the scope of the exemption that applies.

For an employee to be “exempt” under the “White Collar Exemptions” three requirements generally have to be met: (1) The employee must be paid on a “salary basis” (in other words, not by the hour); (2) the employee must be paid at least $684 per week; and (3) the employee must meet the “duties test” that applies to the type of exemption being sought. (The salary basis and salary threshold requirements don’t apply in every case, but we'll focus on the Executive, Administrative, and Professional exemptions, where they do apply.)

The duties requirements for the EAP exemptions are as follows (quoted from this DOL Fact Sheet):

Executive:

• [P]rimary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
• [M]ust customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• [M]ust have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative:

• [P]rimary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
• [P]rimary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional:

            Learned Professional

• [P]rimary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
• The advanced knowledge must be in a field of science or learning; and
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative Professional

• [P]rimary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

There is an exception to the "minimum salary" and "salary basis" requirements for certain learned professionals. Licensed physicians, attorneys, and teachers engaged in the bona fide practice of their occupations will be exempt even if they are paid by the hour and receive less than the salary threshold of $684 per week.

In addition to the EAP exemptions, some other exemptions include those for computer employees, outside sales people, and “highly compensated employees” who receive total compensation of at least $107,432 on an annualized basis, at least $684 a week of which is paid on a salary basis, and who perform at least one of the duties of an executive, administrative, or professional employee.

Common employer mistakes

Misclassification. If these exemption rules seem nitpicky, it’s only because they are. Which means that it’s easy for employers to misclassify employees as exempt when they really should be non-exempt. Once that misclassification is done, the employer can be liable not only for unpaid overtime, but also for all the issues we discussed in last week’s post about the minimum wage: Not paying for all hours worked, improper deductions from wages, off-clock work, and sloppy/lazy/no recordkeeping.

Recordkeeping is a special problem with misclassified employees. Generally, if an employee is exempt, there is no need to keep records of the hours worked because the employee will be paid the same salary regardless. But if it turns out that the employee should have been non-exempt, that lack of timekeeping records can really hurt the employer.

Partial-day docking. As I said earlier, an exempt employee should generally be paid the same amount every week in which any work is performed – whether it’s a lot or a little. If I work 35 hours in a workweek because I had a doctor’s appointment on Wednesday afternoon, those hours I didn’t work cannot be deducted from my weekly salary. If my employer makes the deduction, it is possible that I will no longer be exempt, which means I’ll be entitled to pay for “all hours worked,” including overtime.

Partial day docking became a big deal in 2020 during the COVID-related furloughs. Let’s say an exempt employee was furloughed but spent half an hour during the week checking email. The employer cannot simply pay the exempt employee for the half hour’s worth of work. Instead, that employee should be paid for a full workweek because he performed “any work.” Some employers dealt with this in 2020 by instructing exempt employees in writing that they were not allowed to perform any work during their furlough weeks, and also cut off their access to the company system for the week. In my opinion, that was the way to go.

(Employers are allowed to partial-day dock exempt employees if they are taking intermittent leave under the Family and Medical Leave Act. But the time off has to be actual, genuine FMLA time. If an employee takes the afternoon off but the medical certification says he needs only two hours of FMLA leave, then the employer can partial-day dock only for the two hours of FMLA leave, not the half day.)  

Recent developments

The Wage and Hour Division of the U.S. Department of Labor recently announced that it would be issuing new regulations on the White Collar overtime exemptions. Word on the street is that the minimum salary thresholds will be raised. We will keep you posted.