Being an employer can be complicated, especially when the regulations are constantly changing. So, we realized it’s past time we talked about overtime. We have previously touched on this subject. Three years ago, we mentioned that farm employees could be exempt from overtime requirements. Then, last year, we touched on it when we laid out the basics requirements for new employees. However, recent federal and Pennsylvania changes have modified overtime laws. So, we wanted to take a closer look at the regulations and break down what overtime is and how it may apply to your business and its employees.
Overtime is regulated at the federal level by the Fair Labor Standards Act of 1938 (FLSA)(29 USC §201). The US Department of Labor’s (USDOL) Wage and Hour Division creates regulations interpreting FLSA (29 CFR Parts 510 to 794). The laws combined with the regulations dictate all the national requirements of overtime.
However, Pennsylvania also regulates overtime. The Pennsylvania Minimum Wage Act of 1968 established Pennsylvania’s overtime laws. Whichever law, federal or state, that is more beneficial to the employee is the law that applies in Pennsylvania. (29 U.S.C.S. § 218(a)).
Overtime is not a complicated concept. Essentially, any hours an employee works over 40 hours in any seven day period are considered “overtime.” Employers must pay at least 150% of the regular rate of pay for any overtime (34 Pa. Code § 231.41).
Determining the workweek is essential to overtime calculation. Overtime must be calculated every seven days, regardless of how often the employee is paid (34 Pa. Code § 231.42). The employer can determine any seven day period to be the workweek. For instance, employers may choose a standard Sunday to Monday, but a Tuesday to Monday period would be just as acceptable. It is just crucial that overtime is calculated by the week.
Regular Rate of Pay
An employee who works overtime will be entitled to at least one and a half times their standard rate of pay. So, for an hourly employee, the rate is pretty straightforward. If the employee typically makes $10 an hour before taxes, the employee will earn $15 before taxes for any overtime.
However, it is a little more complicated for a salaried employee. The Pennsylvania Supreme Court recently confirmedthat the “fluctuating workweek” method of calculating overtime pay for salaried workers is not permitted. Thus, when calculating the regular rate of pay for salaried employees, employers should divide the amount earned in one week by 40. So, an employee making $800 per week, would be considered to have a regular rate of pay of $20 per hour ($800 weekly salary / 40 hours = $20 per hour). Then, the employee would earn $30 per hour for any hours worked over 40 in that week.
The court expressly rejected calculating overtime by considering the amount earned divided by the actual hours worked. Thus, employers should not say that a person making $800 a week has a regular rate of pay of $16 if they worked 50 hours that week ($800 / 50 hours = $16).
Bonuses may also need to be calculated into the average hourly rate. Non-discretionary bonuses that are tied to achieving certain preset goals, quotas, or other requirements have to be calculated as part of the wage. However, discretionary bonuses that are given at the whim of the employer do not need to be calculated into the average hourly wage. This is a calculator to help you determine how overtime should be calculated.
There are some exceptions to overtime that apply at both the federal and Pennsylvania level. Since employees are entitled to the regulations that provide the most protection, only exceptions at the national and Pennsylvania level are applicable. The federal exceptions are detailed in 29 USCS § 213. The Pennsylvania exceptions can be found at 43 P.S. § 333.105.
The Federal overtime laws were just updated in January. Now, for any of the overtime exceptions to apply, employees must earn at least $35,568 per year ($684 per week). Since this salary is higher than the Pennsylvania standards, this federal standard applies.
Agricultural employees can be exempt from both the federal and Pennslyvania overtime requirements. We covered that exception in this blog. However, if the farm employee jus not fall under the straight agricultural exemption, they must fall under one of the other exemptions described in the next paragraph.
Executive, Administrative, and Professional Employees
Three of the overtime exemptions are for bonafide executive, administrative, and professional employees. Pennsylvania defines executive, administrative, and professional employees the same as the federal government.
An executive employee is one whose primary duty is the management of two or more employees and has the ability to hire and terminate employees. (29 C.F.R. § 541.100(a)). An administrative employee is one whose primary duty is office work in relation to business activity and operation. (29 C.F.R. § 541.200(a)). A professional employee is one who requires an advanced degree or knowledge in fields like science or learning. (29 C.F.R. § 541.300(a)).
For example, a professional employee would be a medical doctor, an attorney, or accountant. For these exceptions to apply, the employees may spend no more than 20% of their work hours doing the tasks other than those outlined above.
As a clarification, we have mentioned that the USDOL updated the required salary in 2016, making it so that executive, administrative, and professional employees must earn at least $913 per week ($47,476 per year) for these exceptions to apply. But, a court stopped the Department from enforcing the rule. With the recent update of the salary requirement, the
USDOL clarified for any overtime exception to apply, the employee must make at least $35,568 per year.
Outside Sales Employees
Another exception at both the state and federal level is for outside sales employees. An outside sales employee is someone whose primary duties are making sales outside of the employer’s workplace. The employee cannot spend more than 20% of their time doing something else.
Some other exceptions to overtime requirements include exemptions for foreignly employed seamen, small newspaper employees, broadcast companies announcers, engineers, and news editors, some amusement or recreational employees, motor and air carriers, taxi divers, maple sap processors, and movie theater employees. Of course, each one of these exceptions has certain regulations dictating which of these employees can actually be exempt from overtime and how.
So it’s important that employers familiarize themselves with the requirements for their specific industry to properly comply with the requirements. Investigating each specific exception may require reading and interpreting the law and if you don’t properly pay overtime, you could be liable for backpay as well as penalties
Ultimately, overtime is more complicated than you may think, but we hope this blog helps break down the basic requirements and common exceptions.
DISCLAIMER: This blog post is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation with an attorney.