When Do I Have To Pay Overtime Pay? And Why?
I attended a meeting this week in which a Denver business owner told me that some of her employees were asking about overtime pay. She wanted to know when she has to pay overtime, how much does she have to pay, and why. The answers to these questions are in the Fair Labor Standards Act (FLSA).
Congress passed this law in 1938 – sixty years ago – in order to create more jobs during the Great Depression. In those days it was very common for employees to work long hours – sometimes 10 or more hours a day – at straight pay. The FLSA established the 40-hour work week and the federal minimum wage. It also required employers to pay time-and-a-half for all hours over 40 worked in a single workweek by an non-exempt employee. The idea was to create a financial incentive for employers to spread their work among more employees, each working a standard 40-hour week, so that more people would have a job.
The law exempts some employees from its minimum wage and overtime pay rules. Exempt employees are those who are “employed in a bona fide executive, administrative, or professional capacity or in the capacity of outside salesman” and who are paid a salary instead of an hourly wage.
Many people assume that any employee paid on a salary or any employee with some executive, administrative or management duties is exempt from the pay rules. That is not true. In the six decades since 1938, the U.S. Department of Labor Wage and Hour Division, which enforces the overtime pay rules, has prosecuted many employers for failing to pay required overtime. The courts have narrowed the exemptions from overtime pay. In 2004, the U.S. Department of Labor adopted new FLSA regulations that incorporate the court rulings and make the rules easier to follow. These regulations narrow the definitions of exempt employees. In other words, many more workers qualify for mandatory overtime pay than employers may realize.
A non-exempt employee is entitled to overtime pay for all hours over 40 that he or she works in a single workweek. The overtime pay rate for the extra hours is 1½ times the employee’s regular pay rate. So, workers who earn $20/hour are entitled to $30/hour — 1½ times their regular wage – for each hour over 40 hours that they work in a single workweek.
The federal minimum wage is now $7.25 per hour. Effective this year, the minimum wage under Colorado law is $7.36 (except for tipped employees). For those who want additional information, the U.S. Department of Labor Wage and Hour Division’s website at www.wagehour.dol.gov is very helpful.