Understanding Overtime

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The Fair Labor Standards Act (FLSA) is federal legislation that determines which employees are entitled to overtime. It also covers minimum wage, recordkeeping, and child labor. It can sometimes be difficult to determine whether a position is entitled to overtime. There are white collar exemptions, administrative exemptions and several other categories of positions that are automatically exempt, but there can still be confusion on which of these positions the exemption applies to.

Understanding Overtime will explain the current FLSA as well as review the changes that have now been proposed to this legislation. If the changes are adopted, there will be a major shift in which positions are eligible for overtime. There will be a much higher salary threshold to be considered a salaried (exempt) employee. This could have major cost implications for companies. This class will review how you can approach the decision on whether to change an employee’s exemption status and how to evaluate the cost of making these changes.

Topics that will be covered:

  • What is the Fair Labor Standards Act and what are the different exemption categories?
  • How do I determine which positions are exempt from the FLSA?
  • What are the changes that are proposed to the FLSA and how could this affect my company?
  • What is the best way to determine if an employee should be exempt now and if the proposed revisions are adopted? 
  • How to calculate overtime for nonexempt employees who receive nondiscretionary bonuses or commissions.
  • Which benefits are excluded from the regular rate of pay for calculating overtime?

Handouts

  • FLSA Exemption Flowchart
  • FLSA Exempt/Nonexempt Questionnaire

  1. Introduction

  2. Agenda 00:01:22

  3. Recent Legislation Activity 00:03:24

  4. Recent Legislation Activity (cont’d) 00:04:31

  5. Recent Legislation Activity (cont’d) 00:07:25

  6. What’s Next 00:08:26

  7. Final Regulations Have Been Released 00:09:49

  8. Federal Overtime 00:10:40

  9. Exempt vs Non-Exempt  00:13:14

  10. Exempt vs Non-Exempt - Management 00:16:42

  11. Exempt vs Non-Exempt - Executive Exemption 00:18:23

  12. Exempt vs Non-Exempt - Administrative Exemption  00:19:21

  13. Exempt vs Non-Exempt - Administrative Exemption - Examples 00:22:25

  14. Exempt vs Non-Exempt -Administrative Exemption - Discretion and Independant Judgement 00:24:15

  15. Exempt vs Non-Exempt - Professional Exemption - Learned Professional 00:26:29

  16. Exempt vs Non-Exempt - Professional Exemption - Learned Professional (cont’d) 00:28:37

  17. Exempt vs Non-Exempt - Professional Exemption - Learned Professional (cont’d) 00:30:35

  18. Exempt vs Non-Exempt - Professional Exemption- Creative Professional 00:33:08

  19. Exempt vs Non-Exempt - Professional Exemption- Creative Professional (cont’d) 00:34:08

  20. Exempt vs Non-Exempt - Professional Exemption- Creative Professional (cont’d) 00:36:16

  21. Exempt vs Non-Exempt - Professional Exemption- Creative Professional (cont’d) 00:38:18

  22. Exempt vs Non-Exempt - Computer Professionals 00:40:39

  23. Exempt vs Non-Exempt - Computer Professionals - Primary Duty 00:41:59

  24. Exempt vs Non-Exempt - Outside Sales Exemption 00:42:37

  25. Exempt vs Non-Exempt - Highly Compensated Exemption 00:43:50

  26. Non-Discretionary Bonuses 00:45:03

  27. Federal Overtime 00:46:28

  28. Federal Overtime Concerns 00:48:09

  29. Regular Rate of Pay Table 00:52:02

  30. Calculation 00:53:35

  31. Updated Regulations Accomodate for Adjustments 00:54:50

  32. Best Practices 00:55:46

  33. State OT Requirements 00:57:45

  34. Attendee Questions 00:59:20

  35. Presentation Closing 01:09:06

  • Cynthia Keaton

    Cynthia Keaton

    Cynthia C. Keaton, SHRM-SCP is a senior human resources executive and consultant with extensive experience leading HR strategy, operations, and transformation across a range of industries including government, manufacturing, life sciences, and heavy equipment. As Founder and Chief Consultant of Keat [...]

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  • Department of Labor (DOL) 
  • Duties Test 00:09:17
  • Exempt 00:10:05
  • Fair Labor Standards Act (FLSA) 00:46:28
  • Non-Discretionary Bonus 00:45:14
  • Non-exempt 00:11:41
  • Overtime 00:10:43, 00:46:35
  • Salary Threshold 00:09:59
  • Tipped Employee 00:48:25

Department of Labor (DOL): The United States Department of Labor is a cabinet-level department of the U.S. federal government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, reemployment services, and some economic statistics; many U.S. states also have such departments.

Duties Test : A duties test is used to determine whether employees earning more than the salary threshold must be classified as nonexempt from overtime, including the tests for meeting the executive, administrative and professional exemptions

Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage

Non-Discretionary Bonuses: A non-discretionary bonus is a bonus that the employee is expected to be paid and it is usually given at the same time, either monthly, quarterly or annually. Because these bonuses are agreed upon ahead of time, they must be included in the regular rate of pay and the calculation of overtime.

Non-Exempt: Non-exempt employees are workers who are entitled to earn the federal minimum wage for every hour they work. Such workers likewise qualify for overtime pay, which is calculated as one-and-a-half times their hourly rate, for every hour they work, above and beyond a standard 40-hour workweek.

Overtime: Overtime is time and a half of what an employee earns for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages.

Salary Threshold: The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages. Beginning January 1, 2020, the salary threshold increases, making a number of previously exempt employees nonexempt. The new FLSA salary threshold is $35,568 annually or $684 per week.

Tipped Employee: Any employee working in an occupation in which he or she regularly receives more than $30 a month in tips is considered a tipped employee. Minimum Hourly Cash Wages for Tipped Employees Under Minimum Wage Laws. A listing of wage and tip amounts required to be paid to tipped employees as determined by state law.

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Frequently Asked Questions

Correctly classifying employees as exempt or non-exempt from overtime under the Fair Labor Standards Act is one of the most consequential—and frequently litigated—determinations in HR and payroll compliance. Misclassification can result in substantial back pay liability, penalties, and class action exposure. The analysis involves two tests that must both be satisfied for an employee to qualify as exempt: the salary basis test and the duties test. The salary basis test requires that the employee be paid a predetermined, fixed salary that is not subject to reduction based on the quality or quantity of work, and that salary must meet or exceed the FLSA minimum salary threshold. The duties test requires that the employee's primary job duties fall within one of the recognized exemption categories—executive, administrative, professional, computer employee, outside sales, or highly compensated employee. Meeting the salary threshold alone is not sufficient; the duties must also qualify. The executive exemption requires management as a primary duty plus authority over at least two full-time employees. The administrative exemption requires office or non-manual work directly related to management or general business operations and the exercise of discretion and independent judgment on significant matters. Aurora Training Advantage's Understanding Overtime webinar with Cynthia Keaton, KeatonHR, provides detailed analysis of each exemption category with practical examples and decision tools.
The FLSA white collar exemptions are the primary categories under which salaried professional and managerial employees may be classified as exempt from overtime requirements, and each has specific salary and duties criteria that must be satisfied. The executive exemption applies to employees whose primary duty is managing the enterprise or a recognized department, who customarily and regularly direct two or more full-time employees, and who have authority to hire, fire, or whose recommendations regarding employment are given significant weight. The administrative exemption covers employees whose primary duty is office or non-manual work directly related to management policies or general business operations, and who exercise discretion and independent judgment on matters of significance. The learned professional exemption applies to employees whose primary duty requires advanced knowledge in a field of science or learning, customarily acquired by a prolonged course of specialized intellectual instruction. The creative professional exemption covers employees whose primary duty involves invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. The computer employee exemption applies to certain IT professionals meeting specific duties criteria. The outside sales exemption covers employees whose primary duty is making sales away from the employer's place of business. The highly compensated employee exemption applies to employees earning above a specified total annual compensation threshold. Aurora Training Advantage's overtime webinar with Cynthia Keaton provides detailed guidance on applying each exemption correctly.
Calculating overtime correctly for non-exempt employees who receive non-discretionary bonuses requires including the bonus amounts in the regular rate of pay calculation—a step many employers overlook, resulting in underpayment of overtime that creates significant wage-and-hour liability. A non-discretionary bonus is any bonus the employee has a reasonable expectation of receiving based on a prior promise, established practice, or incentive plan, as opposed to a discretionary bonus decided solely at the employer's whim with no prior promise. Because non-discretionary bonuses are paid as compensation for work performed, they must be included in the regular rate of pay, which is then used as the basis for calculating the one-and-a-half overtime premium. The calculation methodology depends on the bonus period. For a weekly bonus, the bonus is added to straight-time earnings for that week, total hours are divided to find the regular rate, and the additional half-time premium is paid for overtime hours at that rate. For bonuses covering longer periods such as quarterly or annual bonuses, a retroactive recalculation is required—the bonus is allocated back across all workweeks it was earned to recompute the regular rate for those weeks and determine any additional overtime owed. Common non-discretionary bonuses that trigger this calculation include attendance bonuses, production bonuses, and certain commissions. Aurora Training Advantage's Understanding Overtime webinar with Cynthia Keaton covers these calculations with worked examples.
The FLSA salary threshold is the minimum weekly salary an employee must receive to potentially qualify for an overtime exemption under the white collar categories—executive, administrative, and professional. This threshold has been a subject of significant regulatory activity in recent years and is an important compliance benchmark for HR and payroll professionals to monitor. The most recent substantial update set the salary threshold at $684 per week ($35,568 annually) effective January 1, 2020, a significant increase from the prior threshold of $455 per week that had been in place since 2004. The DOL also made changes to the highly compensated employee (HCE) threshold, raising it to $107,432 annually. The DOL proposed further substantial increases to the standard salary threshold as part of ongoing regulatory activity, with the intent to raise it significantly higher and index it to future economic conditions. These proposed changes have significant cost implications for organizations with many employees who are currently classified as exempt under the white collar exemptions but earn salaries near the existing threshold. Employers must monitor regulatory developments closely and model the financial and operational impact of potential threshold changes on their workforce. Aurora Training Advantage's Understanding Overtime webinar with Cynthia Keaton covers both current rules and how to prepare for proposed FLSA salary threshold changes.
While the FLSA establishes the federal floor for overtime requirements, many states have enacted overtime laws that provide greater protections for workers—and when state law is more generous than federal law, employers must comply with the higher standard. California is the most notable example, with unique overtime rules that require overtime pay for all hours worked over 8 in a single workday (not just over 40 in a workweek), as well as double time for hours over 12 in a day or over 8 on the seventh consecutive day in a workweek. Alaska, Nevada, and a few other states also have daily overtime requirements. Some states have higher salary thresholds for exemption than the federal minimum, meaning employees who meet the federal salary test but not the state threshold are non-exempt for state purposes and entitled to overtime. State exemption categories and duties tests may also differ from federal standards. For employers operating in multiple states, payroll systems must be configured to apply the appropriate overtime rules by jurisdiction, and HR teams must understand which rules apply to which employees. Failure to comply with applicable state overtime requirements can result in state-level wage claims, class actions, and penalties that often dwarf federal exposure in high-risk states like California and New York. Aurora Training Advantage's overtime webinar with Cynthia Keaton addresses state overtime requirements and best practices for multi-state compliance.