How to correctly compute overtime seems to generate more calls than any other wage- and-hour issue. The basic rules are:
1. Whether or not a person is entitled to overtime depends on: (a) the fact the person is paid a salary, not an hourly wage; and (b) his or her function and job duties, not his or her title. Calling someone a "manager" does not mean he or she has the kinds of authority and discretion that are the hallmarks of an exempt manager or that the person spends most of his or her time managing the requisite number of people. If you have any doubts about a person's status, call us with a complete description of what the person does, the number of people that person supervises, the level of authority the person has and the amount of judgement and discretion the job entails. We can help you determine whether that person is entitled to overtime.
2. Overtime is paid at time and a half the person's regular hourly rate with a few exceptions. The regular rate is easy to determine if the employee is a straight hourly employee. Multiply the hourly rate times 1.5 for the overtime rate. If the person is on a monthly salary, multiply the salary times 12 and divide by 2080 to get the hourly wage. Multiply that by 1.5 for the overtime rate. If the person is on an incentive plan, such as one involving an hourly wage or monthly salary plus an incentive bonus if a certain level of production or performance is achieved, add the total hourly wage and bonus for the work week together and divide by the actual number of hours worked to determine the regular rate.
3. You can have salaried employees who are not exempt from overtime and who do not get "time and a half" extra for overtime. If you and your employee agree that the salary covers all hours the employee works and the employee works a varied number of hours per week, the overtime premium is one-half the regular hourly rate. The regular hourly rate is determined by dividing the weekly salary by the actual number of hours worked (including overtime hours). You then pay the employee one-half of that amount per hour of overtime since the salary has already paid the "time" part of time and a half. This method of compensation is called the fluctuating work week rule (try saying that fast four times!). If you decide to use this rule, we advise you to put the pay plan in writing and have it signed by the employee.
4. Hours that are paid as holidays, sick days or vacation days are not counted to determine whether the person has worked more than 40 hours in a week. If someone is paid for a holiday and did not come to work that day, they may get 48 hours of pay but no overtime since eight of the paid hours were not hours actually worked.
5. If you don't want to incur overtime, make sure people leave at the end of their scheduled time and are not at their job stations before their scheduled time. The Fair Labor Standards Act allows only 7 = minutes of leeway before and after the scheduled starting and ending work times. You are the one responsible for insuring work schedule conformance.
6. Be sure to keep accurate time records, even for salaried non-exempt people. If you follow these basic rules and call when you have a question, you won't have the overtime dragon breathing the fire of state audits, double damages and attorneys fees!