Definition
The term overtime pay refers to the hourly rate paid when an employee works in excess of forty hours in a week or on a regular day off. Under the Fair Labor Standards Act, corporations are required to pay certain employees a rate of pay that is at least 1.5 times their standard hourly wage.
Explanation
Under federal law, companies are required to pay employees covered by the Fair Labor Standards Act (FLSA) not less than 1.5 times their hourly rate when they work in excess of forty hours in a seven day workweek. The FLSA does not require companies to pay overtime when a covered employee works on a Saturday, Sunday, holiday, or regular day off (RDO).
Paying employees a higher rate of pay is thought to provide corporations with a financial disincentive to overwork their employees. An agreement to pay overtime under a variety of conditions can also result from negotiations with a collective bargaining unit such as a trade union. Typical agreements that are not required by the FLSA, but may be negotiated, include:
Paying employees overtime when they work in excess of eight hours in a 24 hour period.
Agreeing to pay employees overtime for all hours worked on one of their regular days off.
Paying employees double time if they work on their second regular day off or a Sunday.
Agreeing to pay employees overtime if they work on a holiday.
Paying employees overtime anytime they are required to work hours that are not part of their regular shift.
Corporate policies may also provide for overtime payment to FLSA-exempt employees, which are normally classified as "salaried" individuals. Typically, mid-level and executive management positions are never paid overtime for hours worked outside of their normal workweek.
Individual states may also have regulations requiring the payment of overtime to employees under certain conditions. If a state's requirements are more "generous" than federal requirements, the state's guidelines must be followed. For example, California Labor Code requires the payment of double time when an hourly employee works in excess of 12 hours in one day or in excess of eight hours on any seventh day of a workweek. Exceptions include employees that work an alternative workweek and the time spent commuting.
Read More: Work-Life Balance Statistics
Overtime when Running a Small Business
In some cases, small business owners have to work a few more hours to ensure all business tasks are completed. The reason is that they don't have the resources to hire more employees so they have to do some extra hours in some cases. According to startup statistics, the share of small business owners that work overtime is 81%.
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