With very limited exception, all employers, regardless of size or total
number of employees, are subject to the federal wage and hour laws. This
means that virtually every employee must be paid at least the minimum
wage, currently $7.25 per hour, for all hours worked in a seven-consecutive
day period (generally referred to as the “workweek”), and
must also be paid an overtime premium for hours worked over 40.
The overtime law requires that all hours worked over 40 in a given workweek
must be compensated at a rate of not less than time and one-half. Thus,
for a nonexempt hourly worker who earns minimum wage and works 45 hours
during the workweek, the employer must pay 40 hours at straight time ($7.25
x 40 = $290) plus an additional amount in overtime pay ($10.87 x 5 = 54.35)
for a total of $344.35 for that workweek.
While at first blush this seems a simple calculation, there are numerous
ways that employers run afoul of the law in their pay practices. For example:
– Merely because an employee is salaried does not mean that she is
not entitled to overtime pay.
– Employees who are paid on a piece-rate basis must still earn the
equivalent of the minimum wage for hours actually worked, and they are
likewise entitled to overtime pay for hours worked in excess of 40 per workweek.
– Classifying a worker as an “independent contractor”
does not always protect the employer from being required to pay that worker
minimum wage and overtime.
– Misclassifying a worker as “exempt” is a common error.
Only those individuals who meet rigid tests for being either an executive,
professional, or administrative employee are exempt from the overtime
– Employees who work at home, or “telecommute,” may still
be subject to minimum wage and hour laws.
– Employees who are “on call” may have to be compensated
for the time spent while they are waiting to be called to duty.
In addition to the problems associated with determining when an employee
is entitled to overtime pay, employers often make mistakes in determining
the “regular rate” of pay for purposes of calculating the
overtime rate. If an employer fails to include all compensation in the
determination of the regular rate, then the employee’s overtime
pay will be too low. The general rule is that everything the employee
receives by way of compensation must be included in the regular rate.
For example, the following types of compensation must generally be included
in the regular rate but are often overlooked:
– Nondiscretionary bonuses (such as those awarded for accuracy of
work, good attendance, production and quality of work, etc.)
– On call pay
– Contest prizes
– Shift differentials
The calculation of overtime pay is one of the major areas of litigation
arising under the federal labor laws. As an employer, if you are unsure
as to whether you have responsibilities for overtime pay, you should consult
an attorney who is well-versed in this area. Likewise, if you are an employee
and believe that you have not been paid properly according to the law,
you may have legal rights that a competent attorney can assist you in