To whom do I have to pay overtime? Is this a question you have asked before? Small business owners have a lot on their plates, so this can often be an unanswered question. It is critical to the success of your business that you have a clear understanding of the current laws. If you make an error when calculating payroll, or fail to give non-exempt salaried employees overtime, you could face extensive liabilities. In this blog, I will provide you with some insights into what overtime pay is. I will also discuss whom overtime applies to, what the current overtime rules are, and what changes are coming in 2020.
What is overtime pay?
Let’s start at the beginning. Overtime pay is one and one-half times the regular rate of pay. This rule applies to any employees who have worked over 40 hours in any seven-day workweek. There is no limit on the number of overtime hours worked in any workweek if the employee is 16 years old or older.
Who does overtime apply to, and what are the current rules?
So is anyone exempt from overtime? First, we must note the differences between a “blue-collar” and a “white-collar” employee. A white-collar employee is defined as “belonging or pertaining to the ranks of office and professional workers whose jobs generally do not involve manual labor or the wearing of a uniform or work clothes.”. In contrast, a blue-collar employee is “ a wage-earning worker who wears work clothes or other specialized clothing on the job…”
According to the Fair Labor Standards Act, there are exemptions to white-collar employees employed as executive, administrative, professional, and outside sales employees. There are NO exemptions for blue-collar workers employed to operate with their hands, physical skill, and energy. For a complete list of exemptions, be sure to visit https://webapps.dol.gov/elaws/whd/flsa/screen75.asp
What if you pay your employee(s) a set salary? For the employees that meet the “white-collar” exemption, their standard salary level must be $455 per week (or $23,660 per year) to be exempt from overtime pay. There is still NO exemption for “blue-collar” workers, even if they are on a salary. You will need to perform a piece-rate calculation to determine the additional amount due.
Here is an example of piece-rate calculation:
The employee works 45 hours in a 40-hour workweek with a salary of $405
Divide salary by the number of hours worked $405 / 45 hours = $9.00 an hour
Calculate half time $9.00 / 2 = $4.50
Overtime pay 5 hours x $4.50 = $22.50
What changes are coming in 2020?
I have based these insights on today’s rules, but changes are coming in 2020. Effective January 1, 2020, the standard salary level is increasing from $455 to $684 per week or $35,568 per year. There are other rule changes, as well. The Department of Labor designed these changes to put more dollars in the pocket of the American worker. They will also give a boost to our already strong economy. If you would like to see all the rule changes for 2020, please click here.
Additionally, you may find the complete guide to the Fair Labor Standards Act here.
I hope that I have answered some of your questions about the current overtime laws and how they are to be applied. Thank you for taking time out of your day to read my blog. Here at Payroll Complete, we strive to ensure that our clients maintain compliance and a clear understanding of all tax and payroll-related laws. If overtime pay has ever been a question for you as a small business owner, please reach out to us, we would love to help!