Requirements for an Employee to Be Exempt from Overtime

The Fair Labor Standards Act states that employers are required to pay any employee who has worked over 40 hours a week at a rate of 1.5 times the employee’s “regular pay rate” for any hours worked beyond that number. But to complicate things, that is not the case in all circumstances. In some instances, some employees are exempted from the overtime rule as a whole. 

Additionally, the United States Department of Labor has been working to update the rules regarding overtime pay as of January 1, 2020, some of which have not been updated in almost half a century! So if you are concerned about keeping up with these new changes, read on.

The Overtime Salary Threshold

Employees can currently not be exempted from overtime pay unless a certain income threshold is reached per year. It used to be $23,660 but now it is being raised to $35,568 on January 1, 2020. Employers are able to pay up to 10% of that salary with incentives and non-discretionary bonuses. Additionally, employees who make over $107,432 are classified as “highly compensated” and may be exempt.

The Salary Basis Test

Another factor is the salary basis test, which states that an exempt employee should be paid on salary. According to the Department of Labor, a salaried employee is an employee who receives a set amount of compensation every pay period, regardless of the basis. The predetermined amount cannot be reduced because of variations in work quantity or quality. 

Exceptions exist to this rule. Outside sales employees, employees practicing medicine or law or teacher are not required to be paid on salary. Administrative, computer and professional employees may also opt to work for “fees” rather than a salary. If this is the case, they must be paid enough for each task if they work 40 hours each week, making a minimum of $684.

The Employee Duties Test

Finally, there are five job categories that are eligible for exemption. These include executive, administrative, computer-related professional, administrative and outside sales exemptions. 

Calculating overtime can be daunting. Why not reach out to us to get help from a knowledgeable payroll team that cares?