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What You Need to Know About the Federal Overtime Rules

New federal overtime rules
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Which employees in your organization are entitled to overtime protections? It's a critical question for employers to answer, because failure to extend overtime pay to all eligible workers could land a business in hot water quickly.

However, it's not always an easy question to answer. In 2016, the rules governing overtime protections seemed like they were about to change, but the rule change was scrapped at the eleventh hour. Now the U.S. Department of Labor (DOL) has signaled once again that overtime rules are up for discussion, and we could see new proposed regulations before the end of the year.

Here's a look at current overtime regulations, the consequences of noncompliance and what we know about the potential rule change on the horizon.

Overtime laws are set out in the Fair Labor Standards Act (FLSA), which is administered by the U.S. DOL. That means the department is responsible for interpreting the law and setting a precise set of rules that businesses are required to follow. These rules include when employers are required to pay overtime to employees, the rate at which workers earn overtime pay and which types of employees are exempt from overtime protections. [Interested in time and attendance software to make sure you're compliant with the law? Check out our best picks.]

As the rules stand today, any employee who is not considered exempt under the law (more on exemptions below) must be paid overtime at a rate of 1.5 times their regular pay for every hour worked beyond 40 hours in one workweek. The U.S. DOL defines a workweek as any "fixed and regularly recurring period of 168 hours," which basically means seven full, consecutive days.

There is no limit to how many overtime hours an employee can work so long as they are compensated appropriately. Any time a non-exempt employee works beyond that 40-hour maximum must be paid at the overtime rate of 1.5 times, or the employer is in violation of the FLSA.

There is an array of employee exemptions to this rule, however. If an employee falls into one of the below classifications, employers are not required to extend overtime pay:

  • Executive: Executive employees are defined as those who make a salary of no less than $455 per week and whose primary duties include managing the company or a recognized department or subdivision of the company. Executive employees regularly direct the work of at least two full-time employees and maintain the authority to hire or fire other employees, or at least influence the process.
  • Administrative: Administrative employees are defined as those compensated on a salary or fee basis of $455 per week or more. Their primary duties must be the performance of office or non-manual work related to the management of general business operations of the employer or clients. They must also exercise discretion and independent judgment in significant matters.
  • Professional: Professional employees are defined as those compensated on a salary or fee basis at a rate no less than $455 per week and primarily focused on the performance of work requiring advanced knowledge, intellectual in character and requiring the consistent exercise of discretion and judgment.
  • Computer-related: Computer employees are those compensated either on a salary or fee basis at a rate no less than $455 per week or, if compensated on an hourly basis, no less than $27.63 an hour. Their primary duties must include the application of systems analysis techniques and procedures, or the design and development of computer systems or programs.
  • Outside sales: An employee meets the outside sales exemption if their primary duty is making sales, obtaining orders or contracts for services. They must regularly work outside the employer's primary workplace.  

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There are two major consequences for employers that violate overtime laws. The first is being subject to employee lawsuits, which can quickly become expensive and generate negative publicity. For FLSA violations, employers are generally required to provide back pay to affected employees as well as liquidated damages equal to back pay owed. That immediately doubles the cost of complying up front, without taking into consideration any legal fees employers would be required to cover.

The government could also take action against non-compliant employers. The U.S. DOL's Wage and Hour Division can levy fines of up to $10,000 for willful FLSA violations the agency uncovers. If it finds employers repeatedly, willfully violated the law, penalties could involve imprisonment. In other words, it pays to comply with the overtime laws the first time.

In 2016, the Obama administration's DOL appeared ready to change the rules governing employee exemptions. These changes would have tightened the definitions of each classification and raised the pay threshold to $913 per week, or a salary of $47,476. That change was expected to extend overtime protection to 4.2 million additional workers compared with the current regulations. Many businesses adjusted their policies in preparation for the change, including shifting salaried employees to an hourly wage, but the rule change was ultimately scrapped after the Trump administration took power.

On May 9, however, the Trump administration's DOL raised the specter of a rule change once more. When the department published its rule list for spring 2018, the overtime regulations were included as a topic for discussion. No official rule changes have been proposed, but the DOL announced it would "clarify, update and define regular rate requirements." This suggests any proposed rule changes will govern how much businesses must pay workers for overtime labor, rather than who qualifies for overtime protections.

In addition to rule changes, employers should also be aware of how state laws affect their policies. The federal overtime protection rules are just a minimum, and some states go above and beyond. Becoming acquainted with state law is as critical as federal law, and failure to do so could result in penalties assessed at the state level even if you're compliant with federal law.

Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.