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spike bullet May 2006 - Overtime Eligible (or not) and Why You Should Care

Definitions 
Overview and Background
What Managers Need to Know
Exemptions:  Executive, Administrative, Learned Professionals, Creative Professionals, Computer Professionals, Outside Sales
Other categories: Trades & Physical Labor, Law Enforcement, Public Sector 
Where to get Help
Resources (links, articles, books & fun)

spike bullet Overtime Eligible (or not) and Why You Should Care

In the United States, one area of employment rules that is confusing to many managers is the Fair Labor Standards Act (FLSA), which defines (among other things) which jobs are eligible for overtime and which jobs are not overtime eligible.  If you hear someone saying something like "fleece-a" or "fleas-a" they are talking about FLSA.

Why is it so confusing?  One reason is that within any job, there could be overtime-eligible components and overtime-exempt components.  The portion of duties that is the majority of their work usually determines the eligibility for overtime, although even that can be the different for a particular type of job.

Another reason for the confusion is the various "exemptions" that can be subject to interpretation.  Many managers are not well trained in human resources rules and details.  Even some human resources professionals may not be up-to-date on the latest rules and changes.  Therefore, both may make assumptions that could get them or their company in trouble.

Lawsuits filed over overtime eligibility can create severe fines and penalties for the employer, not to mention morale problems, distrust of management and resentment on the part of employees if the issue is not properly handled.  Even the United States Department of Labor mentioned the problem of employers trying to follow the law becoming trapped by misunderstandings and the ambiguity of the words used in defining various job categories.

In August 2004, a major update went into law to clarify the FLSA and to make it easier to understand (called FLSA "Final Regulations").  If you have not received training or instruction in the new rules recently, it’s probably time to schedule some current training.

Caveat: We should add here that we are not attorneys and are not giving legal advice.  We try to provide information that can be understood by our readers with additional resources so they can learn more on their own.  For full determination of overtime eligibility, refer to the US Dept of Labor’s website, your state’s labor department, your local human resources department or your employment law counsel.

Definitions

Overtime eligible (also called "covered" or "non-exempt"): The employer must pay the employee overtime pay for any work performed over 40 hours a week at the rate of 1.5 times their base pay hourly rate.

Overtime exempt (also called "not covered" or "exempt"): The employee is not paid any extra pay for work over 40 hours a week.  They are expected to work as many hours as it takes to do their job. That could be 1 hour in a week or 60+ hours in a week or anything in between.

A brief overview and background

The Fair Labor Standards Act (FLSA) became effective nationally in 1938 and established the 40-hour basic workweek.  Prior to that, employers often required employees to work 6 or even 7 days a week.

In 1966, Congress extended coverage to a limited number of public employees, mostly in schools and hospitals.

In 1974, Congress expanded FLSA coverage to all state and local governments, thereby declaring that public employees should be entitled to the same standards of decency as other workers.  Some public employers disagreed and went to court seeking to have FLSA coverage declared unconstitutional.

The Supreme Court sided with the public employers in its June 1976 National League of Cities v. Usery decision.  However, in 1985, this ruling was overturned.  In its Garcia v. San Antonio Transit Authority decision, the Supreme Court finally guaranteed FLSA protections to all state and local government employees.

The FLSA has been modified since then in some ways many times, and was extensively updated and modified in the past few years.  The most recent major update was in 2004.

The Fair Labor Standards Act covers:

  1. Payment of minimum wage;
  2. Overtime pay for time worked over 40 hours in a work week;
  3. Restrictions on the employment of children; and
  4. Recordkeeping rules.

The FLSA applies to employees — not to contractors, vendors, external consultants or independent contractors.  To be covered by FLSA, the "employee" (the individual person) and "employer" (the company or organization) must have an employment agreement, either signed or implied.

One area that has gotten many employers into trouble has been the misclassification of employees as independent contractors.  The IRS has a detailed test to determine whether someone is an independent contractor or an employee.  See the Resources section for more about this subject.

Over the years, some employers have tried to categorize all of their employees as "managers" or as "overtime exempt" to avoid paying overtime.  This is also a dangerous practice since eventually the employees with file a lawsuit and the employer will end up paying far more than if they had paid their employees correctly in the beginning.

What Managers Need to Know

The FLSA has quite a few categories of jobs that are exempt from overtime (see http://www.dol.gov/elaws/esa/flsa/screen75.asp  for a list of those).

Significant changes were made to the FLSA for the Executive, Management, Administrative and Professional exemptions effective August 2004 to restore the intent of the law that had eroded since 1975 when it was previously defined.  Some of the changes updated the criteria for overtime eligibility  based on how much money someone makes, whether they are paid a regular "salary" regardless of hours worked and the nature of the work they do.

Some of the most commonly known exemptions are for management/executive, administrative, outside sales and computer professional employees.  These are often called "white collar" jobs.

Even within these categories, there are a number of different rules that may or may not apply, such as the provision that people making over $100,000 a year are overtime exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

Employees who are not overtime exempt must be paid overtime pay if they work over 40 hours per week.  In some states, employees must be paid overtime if they work more than 8 hours per day.

Executive Exemption

To be considered overtime exempt (meaning they are NOT paid overtime) under the "executive" exemption, the employee must be paid a salary of at least $455 per week.  In addition, they must have one or more of the following primary job duties:

  • Manage a company, division or department;
  • Direct the work of several other people; and
  • Have significant authority or influence over promotion, hiring and/or firing decisions.

Administrative Exemption

To be considered overtime exempt under the "administrative" exemption, the employee must be paid a salary of at least $455 per week.  In addition, they must have one or more of the following primary job duties:

  • Perform office or non-manual work related to the employer’s management or general business operations; and
  • Exercise discretion and independent judgment on matters of significance as a regular part of their job.

Learned Professional Exemption

To be considered overtime exempt under the "Learned Professional" exemption, the employee must be paid a salary of at least $455 per week.  In addition, they must have the following primary job duties:

  • Perform work requiring the use of advanced knowledge in a field of science or learning customarily acquired through a course of specialized intellectual instruction.

This exemption does not actually require a specific advanced degree in the field of science or learning, though generally it expects education beyond a bachelor’s degree level or the equivalent advanced formal training.

It generally covers jobs such as lawyers, doctors, teachers, certified physician assistants, pharmacists, registered nurses, engineers, executive chefs, certified athletic trainers, some funeral directors (depending on their advanced training) and commercial airline pilots.  It does not generally cover licensed practical nurses, beauticians, electricians, plumbers, law enforcement, cooks, bakers, most paralegals or dental hygienists.

Creative Professional Exemption

To be considered overtime exempt under the "Creative Professional" exemption, the employee must be paid a salary of at least $455 per week.  In addition, they must have following primary job duties:

  • Perform work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

This exemption does not actually require a specific advanced degree in the field of arts.

It covers artists and artistic professions.  It might cover some journalists that have creative expression as part of their job.  It does not generally cover technical writers, editors and journalists who are reporting facts or information or who follow management directives.

Computer Professional Exemption

To be considered overtime exempt under the "Computer Professional" exemption, the employee must be paid a salary of at least $455 per week or more than $27.63 per hour.  In addition, they must have one or more of the following primary job duties:

  • Application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional applications; or
  • Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or
  • Design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  • A combination of duties described in the three sections above, the performance of which requires the same level of skills.

This exemption does not cover computer employees who manufacture or repair computers.  Because the computer industry is changing rapidly, this exemption has created great confusion over the years that continue today.

To make this category even more confusing, in the 1990’s the Department of Labor changed the rules related to computer jobs to make many of them overtime exempt as part of the management/administrative exemption if they made more than 6.5 times the minimum wage.

An employee in a computer-related job who has particular skills not described above might not fit the computer professional exemption, yet still be overtime exempt if they use considerable discretion and independence as part of their business operations work.

The use of the words like "similar skills" or the "same level of skills" in the FLSA rules adds a continuing area of confusion for the future.

If you are a computer professional or manage computer professionals, this is an area you should pay close attention to so that you understand your rights as an employee and/or your obligations as a manager for proper payment of your employees.  Quite a number of lawsuits have been filed alleging that computer professional employees should receive overtime while their management emphatically believes they are overtime exempt.  Only a detailed job analysis will determine whether it is overtime eligible or overtime exempt.    

Outside Sales Exemption

To be considered overtime exempt under the "Outside Sales" exemption, the employee has the following primary job duties:

  • Makes sales or obtain orders or contracts for services that will be paid by the client of customer; and
  • Regularly engaged away from the employer’s place of business.

This exemption covers sales people who work most of their time outside of an office.  It does not generally cover service repair people, truck drivers who deliver goods or inside sales people.

Trades and Physical Labor jobs

Employees who fall into the category of "blue collar" workers (an employee performing ‘‘work involving repetitive operations with their hands, physical skill and energy’’) are overtime eligible no matter how much money they make.  These include carpenters, electricians, plumbers, construction workers and other "trades" people.

Law Enforcement jobs

Workers in categories such as ‘‘police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or similar work" also are overtime eligible no matter how much money they make.

Police officers, fire fighters, paramedics, EMTs and other first responders are entitled to overtime pay.  Police sergeants, for example, are entitled to overtime pay even if they direct the work of other police officers because their primary duty is not management or directly related to management or general business operations; neither do they work in a field of science or learning where a specialized academic degree is a standard prerequisite for employment.

Public Sector employees

For some categories, the FLSA allows public sector organizations to grant "comp time" in lieu of overtime pay.  The Public Sector includes the federal government, state governments, city governments, county governments, other government organizations, municipalities, public universities and public colleges — in other words, employers who are funded by tax revenues or governments rather than selling products or services to make a profit.

Congress amended the FLSA in 1985 following the Garcia decision to readjust how the FLSA would apply to public sector employers by allowing:

  • Compensatory time off in lieu of cash overtime pay;
  • Partial overtime exemptions for police and fire departments;
  • The use of unpaid volunteers in certain circumstances; and
  • A temporary phase-in period for meeting FLSA compliance obligations.

Compensatory leave time ("comp time") is leave accrued in lieu of payment for time worked in excess of forty (40) hours in a week by an FLSA non-exempt employee.  Comp time may be accrued at the rate of time-and-one-half up to a maximum accrual set by the public sector employer.  Comp time is not generally allowed for private sector employers.

Where to get help

With growing use of the Internet, the US Department of Labor, now has step-by-step tools that can be used to help employees and managers more easily determine whether a particular job is overtime eligible or overtime exempt.

Each of the 50 states may have additional rules that may be stricter than the federal laws so be sure to check your own state’s laws.

We have included a number of good resources for further reading.

World Wide Web graphic  Internet Resources

Business & Legal Reports BLR.com:

Society for Human Resource Management SHRM.org:

U.S. Department of Labor (DOL):

world wide web - articles  Articles

  Books - The Lighter Side   -  Disclosure: We get a small commission for purchases made via links to Amazon.

  • To Bee or Not to Bee.  John Penberthy.  Panorama Press, 2005.  ISBN: 0976864207  A book for beeings who feel there's more to life than just making honey.  http://www.tobeebook.com/ 
    (Reviewer comments: "A delightful fable, honeycombed with wit, singing with wakefulness."  
    "A book for the child in all of us ... a simplicity that is powerful, a parity that reminds us of the Light we all are"  
    "This tender allegory mirrors our learning to Bee Here Now" )  

About our resource links:  We do not endorse or agree with all the beliefs in these links.   We do keep an open mind about different viewpoints and respect the ability of our readers to decide for themselves what is useful.

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