Wages and Hours - Overtime: Payroll Implications

Strict rules and regulations govern all aspects of overtime pay, including how to compute it, what's consider unauthorized overtime, and scheduling the workweek.

Unless employees are subject to a specific exemption from overtime pay eligibility, the FLSA mandates that employees receive one and one-half times their regular hourly payroll rates for working more than 40 hours in a workweek. Because these exemptions deprive workers of a statutory benefit, the courts narrowly construe them. Consequently, it is the employer's obligation to prove that each employee classified as "exempt" is actually covered by a statutory exemption.

An exemption does not apply unless all of the statutory prerequisites have been satisfied. With respect to administrative, professional, supervisory, and outside sales staff, employers must show that the employee in question is paid on a salary basis and primary duties are administrative, professional, or supervisory in nature. Unless both prongs of the exempt status test are satisfied fully, the worker must receive overtime payroll compensation after working more than 40 hours in a workweek.

Computing Overtime Payroll Compensation

Overtime must be computed separately for each workweek. If an employee works 30 hours one week and 50 the next, the employer must pay the employee overtime payroll compensation for 10 hours for the second week regardless of the "short" prior week.

An employer is not required to include paid time off (for example, sick days, vacation, or paid holidays) in hours worked for purposes of computing overtime. Thus, if holiday pay, sick pay, or any other type of pay for hours not actually worked is included in the weekly pay, the overtime rate does not have to be paid until the hours actually worked exceed 40 hours.

Unauthorized Overtime

Even when an employee does not have specific permission to work overtime, extra hours will count toward the total hours worked and thus be included in overtime as long as the employer knew or should have known that the employee was working extra hours and permitted the employee to do so. The employer may discipline an employee for working unauthorized overtime, however the employer may not refuse to count the hours worked for purposes of determining overtime.

Scheduling the Workweek

Employers are free to set the day and hour when the seven-day workweek starts and ends, although it must be a fixed time. A change may be made later, although it must be intended to be permanent. The employer cannot attempt to minimize overtime payroll payments by juggling the workweek to respond to changes in the pattern of hours worked.