The Basics of US Employment Law Part V: Overtime Pay

This final blog in the series on United States Employment Law Basics discusses the how to determine which employees are entitled to overtime pay. The determination is based on whether an employee is “exempt” or “non-exempt”. Only non-exempt employees are entitled to overtime pay.

The concept of “exempt” versus “non-exempt” is an important one in United States employment law. One of the biggest issues employers often face is the determination of whether a particular employee or class of employees is exempt or non-exempt. The terms “exempt” and “non-exempt” relate to whether an employee is covered by the Federal Labor Standards Act (the “FLSA”) or whether he is “exempt” from coverage. Being covered (i.e. being non-exempt) provides employees with certain protections beyond federal and state law and subjects employers to additional requirements, one of the most important being overtime pay.

The FLSA provides that “non-exempt” employees who work more than a certain number of hours per week are entitled to “overtime pay”, which is generally one and a half times their normal hourly rate. Accordingly, it is generally advantageous to employers to have their employees to be considered “exempt” so that they do not have to pay them overtime and abide by the other FLSA requirements.

There are very specific (and often complex) rules to determine whether an employee or class of employees is exempt. In the most general of terms, professional employees (such as lawyers, accountants, doctors, and business executives) are usually exempt. These are the kinds of professions where long workdays are common, salaries are competitive, and higher education is usually a job requirement. It is assumed that individuals with a higher education level have more bargaining power and therefore do not need the protection of the FLSA. On the other end of the spectrum are the unskilled laborers, such as a clerk in a store or a maid in a hotel. These kinds of workers are generally paid by the hour, often at minimum wage, and do not need to be college-educated. These workers are typically covered by the FLSA. However, just because a worker receives a salary (as opposed to an hourly wage) does not automatically mean that he is exempt. There are a lot of companies that pay all their employees salaries, but just because you pay your file clerk a salary does not mean you can get away with not paying him overtime. It is a common mistake to assume that salaried workers are exempt and that only hourly workers are entitled to overtime pay and other FLSA benefits. Although hourly workers are often non-exempt and salaried workers are often exempt, the manner in which an employee is paid is in no way determinative of whether the employee is FLSA-exempt. Figuring out whether an employee or class of employees is exempt often involves a great deal of factual and legal analysis in consultation with your legal department or outside counsel.

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Erica Intzekostas