Posted on: April 24, 2024

The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees overtime (at 1.5 times their regular rate of pay) whenever they work more than 40 hours in a workweek. Overtime violations are a common source of FLSA penalties, which can result in back pay, fines, and damages. To help you understand the rules on overtime, here are some do’s and don’ts to consider.

Do’s

Require employees to record all time worked. 

Time spent using technology outside of the traditional workplace to respond to work email, access the company network, check phone messages, or perform other work tasks is generally considered compensable work time and counts toward whether overtime is due. Make sure non-exempt employees know they must report all time spent working, including time they spend checking work email outside of work hours. If employees can't use your regular timekeeping system to record after-hours work, instruct them on how to promptly and accurately report these hours.

When determining if overtime is due, count nonproductive time that must be paid, too. 

Under the FLSA and many state laws, employers must pay employees for time actually spent working, and also for certain nonproductive time, such as time spent in training or traveling on business. Make sure you understand the rules on nonproductive time that must be paid and instruct employees to record their time accordingly. This time then must count toward whether overtime is due.

Consider all rest breaks of 20 minutes or less as "work time." 

Under the FLSA, rest breaks of a short duration must generally be considered paid working time. The U.S. Department of Labor defines a rest break as any period lasting 20 minutes or less that the employee is allowed to spend away from work. The duration of the break is generally the sole factor used when determining whether pay is required, not the reason for the break (such as for a cigarette, coffee, snack or to make a personal phone call).

Require employees to verify hours worked at the end of pay period. 

At the end of each pay period, require employees to review their time records and verify that they are accurate. This can help you make corrections before running payroll and document that the employee has confirmed the accuracy of their time records.

Calculate an employee’s regular rate of pay correctly.

As mentioned above, the FLSA requires employers to pay non-exempt employees 1.5 times their "regular rate of pay" for all hours worked over 40 hours in a workweek. An employee's regular rate of pay includes not only their hourly rate but also the value of nondiscretionary bonuses, shift differentials, and certain other forms of compensation. Therefore, if the employee receives these other types of compensation, you must factor them in when determining their regular rate of pay.

Under the FLSA, most bonuses are considered nondiscretionary and therefore must be included in the regular rate of pay calculation, including those:

• Based on a predetermined formula, such as individual or group production bonuses;
• Bonuses for quality and accuracy of work;
• Bonuses announced to employees to induce them to work more efficiently;
• Attendance bonuses; and
• Safety bonuses (i.e., number of days without safety incidents).

These bonuses are nondiscretionary because the employees know about and expect the bonus. The understanding of how an employee earns the bonus may lead them to expect to receive the bonus regularly. The fact that the employer has the option not to pay the bonus doesn't make the bonus discretionary.

Here's an example:

Factor in multiple pay rates of pay if applicable.

When the employee has two or more rates of pay during an overtime week, the regular rate for that workweek is generally the weighted average under federal law. Here's an example:

State Law: For the purposes of determining the regular rate of pay, federal law also allows employers to use the hourly rate in effect when the overtime work is performed, as long as the employee agreed to this method in advance of performing the work and certain other conditions are met. These agreements should be in writing. Some states have different rules. Check your state law to ensure compliance.

Don’ts

Don’t permit employees to work off-the-clock. 

Employers can't ask or allow non-exempt employees to work "off-the-clock." If you know or have reason to believe that work is being performed, the time must be counted as hours worked and therefore paid. Make sure you have a policy that expressly prohibits off-the-clock work and have controls in place to prevent it.

Managers should also be trained on how to spot potential off-the-clock work and how to respond. For example, let's say a manager receives a project from an employee via email after the employee's normal work hours and the employee hasn't reported any additional time worked. In this case, the manager should investigate further to determine if the employee worked past 5 p.m. or if there is another explanation (e.g., the employee was done by 5 p.m. but scheduled the email to deliver after that time).

Don’t withhold overtime pay for "unauthorized" work time. 

Under federal law, employers must pay non-exempt employees for all reported and unreported work hours they know or have reason to believe have been performed. This is true even if the work wasn't authorized/scheduled in advance. In most cases, you may satisfy your obligation under federal law by providing reasonable time-reporting procedures and paying employees for all reported hours (state law may require additional actions).

You may have a policy that requires employees to get permission before working overtime (or before starting work early/leaving late). If employees violate the policy, the employer may subject them to disciplinary action for failing to get approval in advance, but in no case may the employer withhold pay.

Don’t forget about state law.

Some states require overtime pay in additional circumstances and at different rates. For example, California requires employers to pay non-exempt employees 1.5 times their regular rate of pay for all hours worked over eight in a workday and 40 in a workweek as well as for the first eight hours of work performed on the seventh consecutive work day in a workweek (double time is required for hours worked over eight on the seventh consecutive day). In California, double time is also required for hours worked over 12 in a workday. Some states have different rules for calculating the overtime pay due. Check your state law for details.

Don’t average hours over multiple workweeks.

The determination of whether overtime is due must be made on a workweek basis under federal law. So, if a non-exempt employee works more than 40 hours in any workweek, they are entitled to overtime pay under federal law, regardless of whether you pay employees on a weekly, bi-weekly, or other basis.

Employers are prohibited from averaging hours worked over two or more workweeks to determine whether overtime is due. For example, let’s say that in workweek one, a non-exempt employee works 30 hours. In workweek two, they work 50 hours. The employee is entitled to 10 hours of overtime pay, because the employee worked that many extra hours in week two and the employer is prohibited from averaging the hours over the two workweeks, regardless of their pay cycle.

Don’t neglect to prorate bonuses earned over multiple workweeks for the purposes of the regular rate of pay.

If a nondiscretionary bonus is earned over a single workweek, the bonus is added to the employee's regular earnings for that workweek when determining the regular rate of pay. However, if the bonus is earned over a series of workweeks, the prorated bonus must be included in the regular rate of pay in all overtime weeks covered by the bonus period.

If the calculation of the bonus is deferred over a period longer than a workweek, the employer may temporarily disregard the bonus in computing the regular rate until the amount of the bonus can be determined. In other words, the employer would pay compensation for overtime at 1.5 times the hourly rate until the bonus can be determined. Once the amount of the bonus can be ascertained, it must be apportioned back over the workweeks of the bonus period. The employer must then recalculate the regular rate of pay for each overtime workweek in the bonus period and pay the overtime pay due on the bonus.

Conclusion

Make sure you're calculating and paying overtime in accordance with state and federal laws.