Overtime Law

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Overtime law requires employers to pay employees a higher rate when they work beyond a designated number of hours.  Governed on both the state and federal levels, the law ensures employees receive fair compensation for the hours they work. In general, the law excludes employees who perform specific types of job duties. To explore this concept, consider the following overtime law definition.

Definition of Overtime Law

Noun

  1. A law requiring employers to pay employees a higher wage once they work a certain number of hours.

Origin

1938     Established by Fair Labor Standards Act

What is Overtime Law?

Overtime laws require employers to compensate employees with a higher rate once they work beyond a designated threshold. Typically, the laws set this threshold at forty hours in one work week, though some specify other thresholds. Overtime law examples of this include paying an employee overtime for hours worked beyond 8 in one work day. When paying overtime, the employer must pay the employee at least one and a half times their regular hourly rate.

Whether a person receives overtime depends on the state laws, which vary greatly. Some states have not passed overtime laws, or have adopted the laws set forth by the Fair Labor Standards Act. Others, however, have enacted their own meaning of overtime laws. When conflicts arise between state and federal overtime laws, employers must apply the law that:

  • Results in the employee receiving overtime if one law requires it and the other does not; or
  • Results in the employee receiving the higher overtime rate if one requires a higher rate than the other.

The law does not require an employer to pay overtime to all employees, as some laws exclude those who perform certain duties. In addition, some overtime laws exclude employees in certain industries. Examples of overtime law exclusions include farm workers and professional actors.

History of Overtime Law

Due to power-driven machinery, the Industrial Revolution allowed for faster and larger production of goods. To meet supply demands, factories operated around the clock, which left many employees working 10- to 16-hour days. In 1867, Illinois followed the lead of Europe and Australia and enacted a law mandating 8-hour workdays. However, many employers refused to abide by this law.

Two years later, President Ulysses S. Grant issued a proclamation setting an 8-hour workday for government workers. Afterwards, the National Labor Union and the Federation of Organized Trades and Labor Unions demanded this privilege for private employees. In 1916, Congress passed the Adamson Act, which established an 8-hour workday for interstate railroad workers.

The history of overtime law dates to the 1920s. When the Great Depression hit, many Americans experienced even more deplorable work conditions. People lucky enough to have employment lost hours or saw a decrease in their wages. Employers often took advantage of high poverty rates, and forced employees to work incredibly long days. Some worked 16 hours per day earning as little as 10 cents per hour.

In 1938, President Roosevelt stopped in Bedford, Massachusetts while campaigning for his second presidential term. During his stop, a girl passed him a note asking for his help. The note explained how she and fellow employees had their wages decreased to an average of $5 per week.

Roosevelt signed the Fair Labor Standards Act (FLSA) in June of that year, establishing the history of overtime law. The FLSA established minimum wage, required overtime pay, mandated record keeping, and set child labor standards. It affects part-time and full-time workers.

Fair Labor Standards Act

In all overtime law examples, the Fair Labor Standards Act classifies workers as exempt or nonexempt employees. The status determines which employees receive minimum wage and/or overtime pay. Unless exempt, employees must receive a minimum wage along with overtime pay for any time worked beyond 40 hours in workweek. Under FLSA rules, overtime pay is a rate of one and a half times an employee’s regular hourly pay.

The following is an example of overtime law:

Mary, who receives an hourly rate of $12, works 45 hours one week. She will earn $12 an hour for 40 hours and $18 an hour for the additional 5 hours.

The Act does not limit how many hours an employee can work in one work week. Nor does it require overtime pay for weekends or holidays, unless the employee works overtime on those days.

Exemptions from FLSA

To determine if an employee falls under exempt or non-exempt status, the FLSA uses an exemption test. This test measures employee salary basis, salary level, and the duties performed. In all overtime law examples, exemptions from FLSA include employees that:

  • Receive a salary-based pay, and
  • earn a minimum of $23,600 per year or $455 per week, and
  • perform exempt job duties

The third part of the FLSA exemption test concerns an employee’s primary job duties. In general, exempt employees perform high-level duties, regardless of their job title. The FLSA uses three main categories: executive, professional, and administrative.

Executive

An employee falls under the executive exemption if he or she:

  1. Supervises two or more employees;
  2. Has a management position; and
  3. Makes decision regarding the job status of other employees such as hiring and firing

Administrative

An employee falls under administrative exemption if he or she:

  1. Performs office or non-manual duties directly related to management or general business operations; and
  2. Those duties include the exercise of discretion and independent judgment.

Professional

  1. An employee falls under professional exemption if he or she:
  2. Has a position that requires advanced knowledge and the consistent use of discretion and judgement;
  3. The knowledge relates to a field of science or learning; and
  4. They acquired this advanced knowledge through advanced education or training.

Examples of professional employees include architects, registered nurses, lawyers, and doctors.

Other common exemptions from FLSA include:

  • Commissioned sales employees if more than half of their earnings come from commission
  • Drivers and mechanics that affect the safety of vehicles in transportation of passengers or property in interstate or foreign commerce
  • Farmworkers employed on small farms
  • Salesmen and mechanics employed by automobile dealerships
  • Employees employed by certain seasonal and recreational establishments
  • Employees involved in performance of work requiring talent, invention, imagination, or originality in a recognized field or art
  • Computer programmers, computer analysts, software engineers, or other skilled computer professionals

Time Off in Lieu

Time off in lieu is an arrangement that allows or requires employees to take time off for additional hours worked. If an employee takes time in lieu, they choose to take the extra time off in place of overtime pay. This option is common for high-paid or stressful positions, where someone appreciates time off more than extra money. In all overtime law examples in the United States, time off in lieu is only legal in the public sector.

Overtime Law Example In Automobile Service Advisors

In 2018, the U.S. Supreme Court ruled on a case involving overtime pay for service advisors at a car dealership. Service advisors perform a wide range of duties including diagnosing mechanical problems to giving price estimates for repairs. Past and current advisors sued the Mercedes-Benz dealership claiming that they should have received overtime pay. The dealership claimed that the FLSA’s exemption for salesmen, partsmen and mechanics employed by automobile dealerships included the advisors.

The court ruled in favor of the dealership. They concluded that, since service advisors greet customers and propose repair service, they classify as salespeople. This means they qualify as exempt according to the FLSA. The court ruling was not unanimous with only five of the nine justices agreeing with the decision.

This was the second ruling concerning overtime pay for service advisors. At an earlier time, the U.S. Court of Appeals stated that service advisors should receive overtime pay. In 2016 however, the Supreme Court sent the case back for review and the appeals court rendered the same decision.

Related Legal Terms and Issues

  • Congress – The legislative branch of the United States federal government, composed of the House of Representatives and the Senate.
  • Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
  • Labor Union – An organized association of workers formed to protect and further the rights and interests of its members.