Federal and state laws require most employers to pay overtime. The overtime premium is 50 percent of the employee's usual hourly wage. These laws contain many exceptions, so not all employees are entitled to overtime. Employees who are eligible for overtime are called "non-exempt" employees, and those who are not eligible for overtime are called "exempt" employees.
When to Pay Overtime
Federal and most state laws impose a weekly overtime standard, which means that non-exempt employees are entitled to overtime for every hour more than 40 that they work in a week, regardless of how many hours they work in a day. However, California and a handful of other states have a daily overtime standard, which means that non-exempt employees are entitled to overtime for every hour more than eight that they work in a day and every hour more than 40 that they work in a week.
Who Must Pay Overtime
To figure out whether you must pay overtime, first determine whether you are covered by the Fair Labor Standards Act (FLSA), the federal wage and hour law that sets out the overtime rules. Generally, your business is covered by the FLSA if you have $500,000 or more in annual sales. Even if your business is smaller, however, you must pay overtime if your employees work in what Congress calls "interstate commerce"-meaning conducting business between states. This includes more than you might think, including making phone calls to or from another state, sending mail out of state, or handling goods that have come from, or will go to, another state. Contact your state's labor department for details.
Which Employees Are Entitled to Overtime
If your business is covered by either the FLSA or your state's overtime law, all of your employees are entitled to overtime unless they fit into an exception. The following workers are "exempt" from the federal overtime law, meaning that they fit into an exception and are therefore not entitled to overtime: executive, administrative, and professional employees who are paid on a salary basis; independent contractors; and outside salespeople.
Administrative, Executive, and Professional Employees
Probably the most common-and confusing-exceptions to the overtime laws are for so-called "white collar" workers. Employees whom the law defines as "administrative, executive, or professional" need not be paid overtime.
To be considered exempt, administrative, executive, or professional employees must be paid on a salary basis and must spend most of their time performing job duties that require the use of discretion and independent judgment.
Salary Basis
An employee who is paid on a salary basis must earn at least $455 per week, and must receive the same salary every week, regardless of how many hours the employee works or the quantity or quality of the work the employee does. Generally, however, if an employer docks an employee's pay (for taking a personal day or not meeting a sales target, for example), then the employee is not paid on a salary basis and is entitled to overtime.
Job Duties
Not every employee who earns $455 or more per week is exempt from overtime. Here are the basic requirements for the administrative, executive, and professional exemptions.
- An administrative employee must perform office or other non-manual work that is directly related to the management or business operations of the employer or its customers.
- An executive employee's primary duty must be managing the employer's enterprise or a recognized division or department of that enterprise, and the employee must regularly supervise at least two full-time employees.
- A professional employee's primary duty must either be performing work that requires advanced knowledge in the field of science or learning, of a type that is usually attained through an advanced course of study.
To learn more about these exemptions, visit the Department of Labor's website at www.dol.gov. For a detailed guide to your legal rights and responsibilities as an employer, including how to comply with federal and state overtime requirements, see The Employer's Legal Handbook, by Fred S. Steingold (Nolo).
Business Q & A by Jim Blasingame
How Much to Hold On?
Q: What factors determine the cost of holding inventory?
A:It's reasonable to estimate that inventory holding costs can equal one-fourth to one-third of the inventory value each year. In addition to the cost of acquisition, there can be significant expenses in possessing inventory, including:
- Costs of borrowing capital, storage space and insurance
- Theft, pilferage and other losses
- Cost of handling to move or rotate stock
- Cost of management, measurement and accounting for inventory
- Spoilage of inventory (e.g. obsolescence or deterioration).
Jim Blasingame is the creator and award-winning host of the nationally syndicated radio/Internet talk show, "The Small Business Advocate," and author of Small Business is Like a Bunch of Bananas and Three Minutes to Success. Find Jim's show and more at www.SmallBusinessAdvocate.com, plus instant answers to your questions at his small business knowledgebase, www.AskJim.biz.
