Employers and employees often have confusion regarding overtime pay, which can ultimately lead to costly disputes. One of the most important steps an employer can take is determining whether the employee is exempt or non-exempt.

Employers are required by law to pay all employees at least minimum wage for every hour worked and a non-exempt employee must be paid the proper overtime pay rate for any additional overtime hours worked. This general rule seems simple enough, but there are numerous factors that must be considered when it is applied in practice.

Exempt Employees

If an employee is exempt, it means that he or she is not entitled to receive overtime pay (In other words, they are “exempt” from overtime pay). Generally, exempt employees are personnel who possess decision making responsibilities. They must meet specific tests regarding their job duties and must also be paid a minimum weekly salary, as set by law. Below are a few examples of the various types of exempt employees:

• Executive exemption: To fall within the executive exemptions, the employee must be a manager who has the authority to direct and supervise the work of at least two other full-time employees. Typically, an executive has the power to make hiring and firing decisions on behalf of the business.
• Administrative Exemption: If an employee’s primary job duty is office work, the administrative exemption may apply. An administrator performs non-manual work that is linked to managing or operating the business. An administrator usually has some discretion to make key decisions for the business.
• Professional Exemption: If an employee has an advanced degree or has obtained specialized knowledge by attending extensive school, the professional exemption may apply.
• Outside Sales Exemption: If the employee’s main job is to make sales calls outside of the employer’s place of business, the outside sales exemption may apply.

Non-Exempt Employees

A non-exempt employee has the right to receive overtime pay. The state law where the employee works determines the amount of overtime pay that is due. Federal law sets the minimum amount of overtime pay, which is one and a half times the employee’s regular rate of pay after 40 hours of work in a workweek.

If a non-exempt employee is paid a salary, federal law requires the employer to divide the employee’s salary by the actual hours worked to determine the employee’s hourly rate. The appropriate overtime pay rate is one and a half times this rate. Of course, the applicable state law may be greater than what is required under federal law. As a result, it is important for employers to consult with a local attorney to verify the appropriate rate of overtime pay is being used.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.