Overtime pay is a protected right to compensation for certain employees for hours worked over forty hours in a work week at one and a half times the employee’s regular rate of pay. Most people understand the general concept of overtime pay but some of the specific rules are not well understood and employers often take advantage of this by not paying overtime pay owed to employees. I’ll discuss who it applies to, how it is calculated and some of typical methods employers use to avoid paying overtime pay.
Who receives overtime pay
Under the federal Fair Labor Standards Act (FLSA) and the Texas Payday Law, all employees are entitled to overtime pay for hours worked beyond forty hours in the work week unless a statutory exemption excludes them from overtime pay. The most common reason why an employee is exempt from overtime is because he or she meets one of the broad exemptions under the FLSA for both minimum wage and overtime pay. These exemptions are for executive, administrative and professional employees, who receive a salary of at least $455 each week and meet the specific tests as an executive, administrative, or professional employee. An employee is not exempt merely because the employer says so. The Department of Labor has specified tests for each classification and identified several positions that are exempt under these tests.
There are also exemptions for other classes of workers, such as certain IT professionals, outside sales representatives, babysitters, certain farmers and fishers. Like the exempt rules above, for each of these exemptions the Department of Labor has created specific meanings and tests for these positions to qualify as exempt from overtime pay.
If an exemption does not apply then you are entitled to overtime pay for hours worked above forty hours in the work week. Even if your employer pays you on a salary basis you may still be salaried but non-exempt, meaning you receive a salary but you are still overtime eligible.
When overtime pay is due
Overtime pay is due at one and a half times the employee’s regular rate of pay for each hour worked over forty hours in the work week. Calculating hours above forty hours is usually simple addition; the key calculation is determining the work week. Under the FLSA and Texas Payday Law, employers must calculate the work week as a fixed schedule of a continuous, seven day, 24 hours per day schedule. It does not have to be Sunday at 12:01am to Saturday at midnight. It can start on any day of the week and end seven consecutive days later, such as Wednesday through Tuesday. Whatever week period the employer chooses must be followed each week on a regular basis. An employer can change the work week but the change must create a new routine. The employer cannot change the week to avoid paying overtime one or two weeks and then go back to the original schedule. Problems can arise when transferring to a new work week and employees cannot be deprived of overtime pay as a result. Employers can have different work weeks for different classes of employees or work locations but the work week must be fixed and routine for each employee.
Employers must pay overtime for each hour of work time above forty hours in the work week. Employers cannot average hours across multiple weeks or carry time over forty hours to later weeks. The hours worked must be calculated within the work week the hours were worked (quite a tongue twister) and paid in the paycheck on the regular pay day for that work week.
Calculating the hours worked for overtime pay is essentially the same as any other pay calculation except the rate of pay changes over forty. Employees are entitled to pay for hours considered work under the FLSA and Texas Payday Law. This includes hours spent performing work for the employer, paid breaks, waiting time where an employee is required to stay on the employer’s work premises waiting for work (such as a receptionist reading a book waiting for calls or visitors), certain on-call time, travel time while traveling in the course of performing work (but not traveling from home to work or work to home) and some other very specific circumstances applying to specific types of jobs.
There is a recognized exception to the forty hour work week for some first responders, including privately employed emergency medical technicians (EMTs) who work eighty hour work blocks over two weeks. This exception is very specific to those roles and apply very different rules.
How overtime pay is calculated
Overtime pay is generally calculated as one and a half times the regular rate of pay for each hour worked. Most employees receive a set hourly rate for each hour worked. In this case, the regular rate of pay is obvious and overtime pay is one and a half times that amount for each hour over forty hours.
Some employees work in jobs where they perform different duties at different rates of pay. (If that is not you, you might want to skip the somewhat confusing math to follow.) In that case, the regular rate of pay is calculated as the weighted average of rate of pay for each hour worked. For example, if the employee worked ten hours at $10/hr and forty hours at $20/hr then the employee’s regular rate of pay would be calculated based on the $10 for 10 hours and $20 for 20 hours added together and then averaged by dividing the sum by the total hours worked, here fifty hours.
10 hours x $10 = $100
40 hours x $20 = $800
$100 + $800 = $900
$900 / 50 (total hours worked) = $18 regular rate of pay
In this example, the employee’s regular rate of pay of $18 is only used to calculate the overtime pay for the ten hours worked over forty. Here the employee has already received pay for each of the fifty hours worked so he has received the “one” in the “one and a half times regular rate of pay” and still needs to be paid the “half”. The “half” is the added amount of overtime pay. The “half” is calculated at one half of the regular rate of pay for each hour over forty. Since the employee’s regular rate of pay is $18, the “half” is $9 per hour. At ten hours of overtime the employee is due an extra $90 in overtime pay above what is already paid, so the employee is entitled to $990 for the week.
Don’t worry if that confused you. If you receive a fixed hourly rate for all hours worked you can forget you ever read that stuff. If you do receive multiple hourly rates and are confused by it, don’t feel bad. When I took Employment Law in law school and we discussed this many of my classmates still did not understand calculate it correctly on the final exam.
The dollar amounts that go into the regular rate of pay calculation, whether you receive one fixed hourly rate or not, can be more than just your normal hourly rate. Any additional wage premiums (or “wage augments” as the Department of Labor calls them) you receive without discretion are included in the regular rate of pay calculation. This includes shift differentials, longevity pay, premium pay for certain positions and other fixed amounts.
Additionally, if you receive commissions paid on a periodic basis those commissions must be calculated back into the work weeks for whatever week each commission was earned. If your employer pays commissions monthly or quarterly and you received overtime pay for any of the weeks covered by that commission payment the employer must go back and calculate the commission back into the regular rate of pay and pay you the additional overtime pay. This is a huge problem for many commissioned in-house sales representatives because many employers fail to perform this calculation.
Some bonuses are also included in the regular rate of pay calculation. If you are eligible to receive nondiscretionary bonuses, those bonuses are part of your regular rate of pay. Nondiscretionary bonuses are bonuses your employer pays out when you meet certain qualifications without management having discretion whether to pay the bonus or what amount to pay. Performance bonuses are usually discretionary because your supervisor has discretion whether your performance qualifies you for a bonus and if so, how much you should receive. Nondiscretionary bonuses generally include incentive or performance bonuses when you automatically qualify for a fixed dollar amount or percentage of your pay upon meeting fixed goals. They also include attendance bonuses earned automatically if you appear for work within fixed requirements (such as perfect attendance) or bonuses for completing training programs.
If you receive nondiscretionary bonuses and worked over forty hours in any work week covered by the bonus then the employer must divide the bonus by the number of work weeks in the bonus period and then for each work week in which overtime occurred divide out that week’s bonus portion by the number of hours worked to determine the regular rate of pay for that week with the bonus included and pay the additional overtime pay.
For example, let’s say you normally work forty hours per week but had one week the last quarter where you worked fifty hours and on where you worked sixty hours. You also received a quarterly attendance bonus of $1000 and your normal hourly rate of pay is $20. Before the bonus is calculated you received:
$800 for each week you worked forty hours (40 x $20)
$1100 for the week you worked fifty hours (1.5 x $20 x 10 hours of overtime = $300, plus $800 regular pay)
$1400 for the week you worked sixty hours (1.5 x $20 x 20 hours of overtime = $600, plus $800 regular pay)
If the quarterly bonus is paid over thirteen weeks then $1000 divided by thirteen means the bonus is prorated at $76.92 per week. Since you worked two weeks of overtime, the employer needs to increase the overtime pay for both of those weeks. You have received the overtime pay for your hourly rate and only need the additional overtime pay for the bonus portion. You have also received the bonus amount, which is the “one” in the “one and a half times the regular rate of pay” so we really only need to calculate the “and a half” portion.
For the fifty hour week you will divide the $76.92 by the hours worked in the week (50) to get the hourly addition of the bonus to the regular rate of pay, which is $1.54 per hour. You have already received that pay in the bonus amount itself, so we just need to add the “and a half” portion of overtime pay. Half of $1.54 is $0.77 per hour and that is the added overtime amount. Multiply that by the number of hours worked over forty (10) and you are entitled to an additional $7.70 of overtime pay.
For the sixty hour week we do the same calculation but instead of dividing $76.92 by fifty we calculate it by the number of hours worked this week (60) to find the regular rate of pay for this week. $76.92 divided by sixty gets us $1.28 per hour. Again we just want the “and a half”portion of that so we divide $1.28 in half and the additional overtime pay is $0.64 multiplied by the hours worked over forty (20) and you are entitled to an additional $12.80 of overtime pay.
You can see a little math here can get confusing, especially when employees work varied hours each week. Many employers do not make this calculation on nondiscretionary bonuses or when they do it, they do it incorrectly and deprive employees of overtime pay they have earned. You may not think the $20.50 is a big deal but it is two percent of the bonus you would leave on the table and could pay for half a tank of gas these days.
One sort of quirky rule that doesn’t happen too often anymore but occurs from time to time is when an employer pays an overtime premium for working beyond the employee’s regular schedule. An employer may try to incentivize work on certain days or beyond the employee’s regular daily shift by offering to pay an additional dollar per hour or a flat dollar amount each week. The Department of Labor specifically excludes this overtime premium from the regular rate of pay calculation and the employer can actually use this premium as a credit against overtime pay when the employee exceeds forty hours. This rules only applies if the employee is working under an employment contract, such as a union contract. If you are an at-will employee, your employer cannot invoke the overtime premium rule to reduce your regular rate of pay.
One major exception to the one and a half times overtime pay rule is when employees are paid a salary, rather than hourly computation of pay, but are not exempt from overtime pay. In this case the employee is paid a flat rate of pay per week for performing her job duties regardless of the number of hours worked. Just because the employee receives a salary does not make her exempt from overtime pay. She is still entitled to overtime pay for each hour worked over forty hours in each work week. However, the major difference is that the employee only receives half the regular rate of pay for each hour of overtime rather than the one and a half times the regular rate of pay. The employer cannot average weeks together or roll hours over to avoid overtime pay but can pay a much lower overtime rate.
If your brain hurts right now, just remember you’re not alone. These calculations often make my head hurt, too. There are lots of payroll administrators and even employment lawyers who do not fully understand these rules.
Common ways employer avoid paying overtime pay you have earned
Probably the most common way employers wrongly avoid paying overtime pay is by misclassifying employees as salaried and exempt. Many employers operate under the idea that just because you are paid a salary you do not receive overtime. This is incorrect. The employer has the burden to prove your position meets one of the exemption tests for overtime pay. It is not enough that you are a white collar employee with a salary.
One common way employers impermissibly avoid paying overtime pay you have legitimately earned is by intentionally or unintentionally miscalculating the regular rate of pay or the hours worked in the work week. Your employer may argue that certain bonuses or premium pay does not apply to overtime but that is not true just because they say so. The same goes for the hours you work. Just because your employer says you are not entitled to pay or overtime pay for certain hours of work does not make it so.
A very common scheme to try to avoid overtime pay is to intentionally “forget” to include the overtime hours on the right paycheck and then promise to add the hours to the next paycheck. That might be an acceptable solution if the mistake is honest as long as the employer pays the overtime pay on those hours instead of rolling them into a week you worked under forty hours to avoid the overtime pay.
Employers often will intentionally roll hours from one week with overtime to other weeks under other schemes and try to get you to go along with it. You may be told that you can roll the overtime hours into weeks where you miss work due to illness or tardiness and those hours can make up what you missed. This is impermissible because you must be paid overtime pay for the hours in which they were worked on the basis of the number of hours worked in that work week.
Employers often attempt to offer other benefits in exchange for foregoing overtime pay. The most common way is to offer paid time off in future weeks instead of the overtime, so you can leave early some day in the future and still get paid for that time. This is impermissible because it violates the requirement that you receive pay for the hours worked in the week they are worked, including overtime pay. It also deprives you of the extra pay associated with overtime. Your employer may instead offer to pay you “off the books” with a cash payment outside of payroll. This is illegal for many reasons, even if the employer pays you the same after-tax amount you would receive from the overtime pay.
Employer frequently wrongly avoid overtime pay through other schemes to avoid paying employees anything for work performed. Employees may be encouraged to work off the clock, such as during lunches or by responding to calls and emails at home. This is still work performed for your employer and you are entitled to pay for that time and overtime pay if the total hours worked exceeds forty. If you work at a job where you must come in early to log into a computer or put on safety equipment so you are ready to perform your job duties at the start of your shift, this time is also time which the employer must pay you and must be calculated into the hours worked in the week for overtime pay calculations. The same is true if you must stay after your shift to shut down computer systems, remove safety equipment, put away tools, etc. It is also compensable time.
These are just some of the ways employers try to deprive employees of overtime. If you believe your employer is denying you overtime pay you have earned you do have remedies available to recover that money. Contact my office to discuss your overtime pay or any other wage claim you may have against your employer.