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Overtime: A big deal


Overtime is a big deal. According to data available on the U.S. DOL Data Enforcement website, employers in the U.S. have agreed to pay more than $2.2 billion dollars in federal overtime back wages for investigations concluded since 2007. That compares to the relatively small amount of $307 million agreed to for federal minimum wage back wages.  The high amount of overtime back wages isn’t only because some employers flat out refuse to pay overtime. Many of the employers found in violation were paying overtime – just not correctly and not in total compliance with the law.

The rules for how and when to pay overtime come from two sources, federal and state. Federal overtime law is found in the Fair Labor Standards Act (FLSA). State of Colorado overtime law is found in the State of Colorado Wage Order. A private business is subject to the FLSA if its annual sales exceed $500,000. Even if it does less than $500,000 per year, some of its individual employees may be covered if they engage in interstate commerce activities like swiping credit cards or ordering goods from out of state.  The State of Colorado Wage Order applies to all private sector employers in four main industry classifications: food and beverage, retail and service, commercial support services, and health and medical.

Many employers with the best of intentions find themselves in trouble with overtime because of the complexity over when to pay it, how to calculate it, and to which employees it applies. Hopefully the following helpful hints will help you stay in compliance with federal and state overtime requirements.

When to pay it: Federal law requires overtime to be paid after 40 hours in a seven day workweek regardless of the length of the pay period. State of Colorado law also requires overtime payment after 12 consecutive hours. Employers who pay on a semi-monthly basis (twice per month) are often in violation of overtime because they aren’t calculating the number of overtime hours worked on a weekly basis.

How to calculate it: Overtime, in both federal and state law, is an additional one half of an employee’s regular rate of pay.  It’s very important to note that the regular rate is not always the same as the hourly rate. If a non-exempt employee receives service charges, non-discretionary bonuses, or commissions, those amounts must be included in the employee’s regular rate calculation, effectively raising the overtime rate of pay.

To whom it applies: All employees who are considered non-exempt and covered by federal and/or state labor law must be paid overtime. There are numerous exemptions from the overtime requirements including employees who work in agriculture, sales, executive positions, professional positions, interstate trucking, and many others. If you think that any of your employees is exempt from overtime, you should be able to point to the corresponding exemption in federal and/or state law and be able to explain how your employee meets the criteria for the specific exemption.  

A common misconception among employers is that if they pay employees a salary, a piece rate or a day rate, it makes them exempt from overtime.  Another unlawful practice is giving comp time or banked hours to employees. The only employees eligible to receive comp time instead of overtime pay are public sector employees.

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Kalen Fraser

Kalen Fraser is the President/CEO of The Labor Brain Inc., a labor law consulting firm located in Fort Collins.  Ms. Fraser worked in the U.S. Department of Labor and conducted investigations on hundreds of companies to determine their compliance with federal labor laws including the Fair Labor Standards Act, Davis-Bacon Act, Service Contract Act, Family Medical Leave Act and the H2A and H2B guest worker programs.  She created The Labor Brain to respond to a growing need in the business community for expert guidance on how labor laws are enforced. She can be reached at kalen@laborbrain.com. More information on the The Labor Brain is available at www.laborbrain.com.

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