## Overtime Payment Questions

**A.** In almost all cases no. Employers and employees who are covered by the FLSA are not free to bargain for either a wage that is below the minimum wage, or for work in excess of 40 hours per week without paying a premium (typically time and a half) for overtime hours. Many employers wrongly believe that they can “cut a deal” with employees to avoid paying overtime rates – they cannot.

**A.** The granting of comp time (paid time off at a later date) instead of paying for overtime is not generally permitted, unless you work for the government.

**A**. While some employers may offer to compensate employees for overtime work by paying some type of a bonus for overtime work, this type of arrangement is not generally permitted by law.

In fact, unless your bonus is completely discretionary, it must be included in determining your “regular rate” of pay when calculating overtime pay.

**A.** If an employee is covered by the FLSA, and most are, an employer cannot disregard an employee’s overtime hours even if the employee agreed to work for a fixed amount of pay, regardless of the number of hours actually worked. While the method of calculating the overtime due to the employee may vary, the employee is entitled to overtime pay for all hours over 40 worked during any given work week.

## FLSA Overtime

**A.**** ****FLSA overtime** refers to the Fair Labor Standards Act, and it is the basis of all American worker’s overtime rights as well as the foundation upon which all **state overtime laws** are written. It was the first overtime act written back in 1938 (sometimes called the Wages and Hours Bill) and was updated in 2004. Originally drafted to establish a national minimum wage, the FLSA also guaranteed time **overtime pay** of 1-1/2 times the standard pay rate for certain jobs, and made it illegal to employ minors for “oppressive minor labor” as defined in the bill.

The workers in jobs which were guaranteed overtime pay came to be known as non-exempt workers and the 2004 update of the this law modified which jobs were exempt from the FLSA. The modifications to the definition of “exempt workers” made at this time has set off a flurry of **overtime lawsuits** as employers and employees test the new boundaries and what they mean for American workers. This situation is even more pronounced in states like California and New York which have enacted state laws that further tighten the definitions of regulations on exempt employees and overtime pay.

In a nutshell, workers who are paid hourly are those most likely to be covered (non-exempt) under these laws. While some salaried positions can be exempt, many salaried employees are misclassified as exempt because their duties do not meet the exemption requirements under the FLSA.

If you believe you have had overtime wages wrongfully withheld according to the FLSA overtime regulations, fill out our complimentary **Case Evaluation Form** today, and one of our **overtime attorneys** will be happy to help you.

**A.** Time and one-half the “regular hourly rate.” If an employee’s regular pay is not expressed as an “hourly” rate, their regular pay rate must be converted to an hourly equivalent.

**The Department of Labor provides the following examples that are based on a 40-hour workweek:**

**Hourly rate** — (regular pay rate for an employee paid by the hour). If more than 40 hours are worked, at least one and one-half times the regular rate for each hour over 40 is due.

**Example:** An employee paid $8.00 an hour works 44 hours in a workweek. The employee is entitled to at least one and one-half times $8.00, or $12.00, for each hour over 40. Pay for the week would be $320 for the first 40 hours, plus $48.00 for the four hours of overtime–a total of $368.00.

**Piece rate** — The regular rate of pay for an employee paid on a piecework basis is obtained by dividing the total weekly earnings by the total number of hours worked in that week. The employee is entitled to an additional one-half times this regular rate for each hour over 40, plus the full piecework earnings.

**Example:** An employee paid on a piecework basis works 45 hours in a week and earns $360. The regular rate of pay for that week is $360 divided by 45, or $8.00 an hour. In addition to the straight-time pay, the employee is also entitled to $4.00 (half the regular rate) for each hour over 40 — an additional $20.00 for the 5 overtime hours — for a total of $380.00.

Another way to compensate pieceworkers for overtime, if agreed to before the work is performed, is to pay one and one-half times the piece rate for each piece produced during the overtime hours. The piece rate must be the one actually paid during non-overtime hours and must be enough to yield at least the minimum wage per hour.

**Salary** — the regular rate for an employee paid a salary for a regular or specified number of hours a week is obtained by dividing the salary by the number of hours for which the salary is intended to compensate.

If, under the employment agreement, a salary sufficient to meet the minimum wage requirement in every workweek is paid as straight time for whatever number of hours are worked in a workweek, the regular rate is obtained by dividing the salary by the number of hours worked each week. To illustrate, suppose an employee’s hours of work vary each week and the agreement with the employer is that the employee will be paid $550 a week for whatever number of hours of work are required. Under this agreement, the regular rate will vary in overtime weeks. If the employee works 50 hours, the regular rate is $11.00 ($550 divided by 50 hours). In addition to the salary, half the regular rate, or $5.50 is due for each of the 10 overtime hours, for a total of $605 for the week. If the employee works 60 hours, the regular rate is $9.17 ($550 divided by 60 hours). In that case, an additional $4.58 is due for each of the 20 overtime hours, for a total of $641.60 for the week.

**In no case may the regular rate be less than the minimum wage required by FLSA.**

**A.** If an employee is paid a fixed salary each workweek for hours that vary up and down from week to week, the employer may use an overtime calculation method called “fixed salary for fluctuating workweeks”. This is the method that some companies in the past used to refer to informally as “Chinese overtime”.

*For example, if an employee is paid a salary of $500.00 per week on a fluctuating workweek basis and works 45 hours one week, their overtime pay is calculated as follows:*

*$500/45 hours = $11.11 regular rate. Since their salary covers all hours worked at straight time, they are due half-time pay for hours worked over 40: $11.11 / 2 = $5.56 x 5 hours = $27.78.*

*If the same employee works 38 hours one week, they should receive their full salary of $500 for the week.*

It is easily the most favorable method for employers of computing overtime, but certain requirements have to be met. To use this method:

- the employee must have a work schedule with fluctuating hours, i.e., not be on a fixed schedule,
- and must be paid a fixed salary that is meant to be straight-time compensation for all hours worked in a workweek, whether the employee works less than or more than 40 hours per week.
- With almost no exceptions, no reduction in the salary may be made for short workweeks.
- In addition, the salary must be large enough to ensure that the regular rate will never drop below minimum wage.

In such a situation, the regular rate is determined by dividing the fixed salary by the number of hours worked that week. Since the fixed salary is already deemed to compensate the employee at straight time for all hours worked, any overtime hours only need to be paid at “half-time”, instead of time and a half. The employee has already been paid straight time by virtue of the salary, and the straight time is only paid once, so the overtime hours will be paid at half the regular rate, thus bringing the employee up to time and a half. In workweeks in which the overtime is high, the regular rate will be low, and the employer will enjoy a lower per-hour overtime cost.

The drawback for the employer is that if work is slow, and the employee is only working 25 or 30 hours per week, the fixed salary must still be paid.

In May 2020, the Department of Labor has issued a new rule loosening the restrictions on employers’ use of the fluctuating workweek method (a/k/a “Chinese Overtime”) to calculate overtime pay for non-exempt salaried employees. Because this method results in employees getting less overtime pay than under any other overtime calculation, workers’ rights advocates did not want to encourage more employers to use the fluctuating workweek method. The new rule allows employers to pay additional compensation based on the number of hours worked, such as bonuses, premium pay, or differential pay, in addition to paying a fixed salary and still take advantage of the fluctuating workweek method. The Obama DOL did not allow the use of these payments if the employer wanted to use the fluctuating workweek method because it felt it would encourage employers to shift a large portion of employee compensation to bonus and premium payments which are usually only offered for less desirable shifts or working longer hours. This new rule will likely go into effect around July 2021.

## Calculating Overtime

**A.** If a salary is paid on other than a weekly basis, the weekly pay must be determined in order to compute the regular rate and overtime pay. If the salary is for a half month, it must be multiplied by 24 and the product divided by 52 weeks to get the weekly equivalent. A monthly salary should be multiplied by 12 and the product divided by 52.

**A.** In most cases – Yes. Unless your bonus is completely discretionary on the part of your employer, it must be included in determining your “regular rate” of pay. If your bonus is tied to achieving certain preset goals, quotas or other requirements, it is not considered to be discretionary.

**A.** The term “workweek” means a period of 168 hours during 7 consecutive 24-hour periods – a 7 consecutive day period. A workweek can begin on any day of the week chosen by the employer, and each workweek stands alone; therefore, an employer cannot average 2 or more workweeks when calculating overtime. If an employee works more than 40 hours in any 1 workweek, regardless of how many hours were worked in the prior or following workweek, they are entitled to overtime pay for those hours.

**Example:**

With a few exceptions for special classes of workers, if an employee works 50 hours in one workweek and then 30 hours the following workweek, they are entitled to 10 hours of overtime pay for the first workweek, even though the average for the two week period is 40 hours per week.