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Overtime Payment Exemption Requirements

Ten Business Fables You Should Read
August 8, 2022

Salaried doesn’t mean exempt from overtime! And job titles alone don’t determine whether or not you must pay overtime when an employee works more than 40 hours in a workweek. The Fair Labor Standards Act (FLSA) provides a three-prong test to determine which employees are exempt from the requirements for overtime payment.

What determines if an employee is exempt from overtime requirements?

  1. The Salary Basis Test – an exempt employee must be paid the same amount every pay period regardless of how many hours are actually worked.
    • Sometimes exempt employees may work more than 40 hours in a workweek but sometimes they may work less than 40 hours. An exempt employee, for example, may take off a few hours on a workday to go to the dentist, but as long as the employee doesn’t take off the entire day, there should be no adjustment to pay or requirement to use accrued leave.
  2. The Salary Level Test – effective January 1, 2020, most exempt employees must be paid at least $35,568 annually ($17.11 hourly, $684 weekly). A few States have set a higher salary requirement for exemption from overtime.
    • Computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field must be paid $35,568 annually or, if paid hourly, at least $27.63 per hour in order to be exempt from overtime requirements.
  3. The Duties Test – exempt employees’ primary duties must be office or non-manual work that fall into one of the following categories:
    • Executive – managing the company or a recognized department AND regularly supervising two or more employees; has responsibility for hiring, firing, and other employment actions (example: Chief Financial Officer)
    • Administrative – primary duty involves managing part of the company’s business operations; exercises independent judgment and discretion (example: Human Resources Manager)
    • Professional – intellectual work that requires advanced education or training (example: accountant)
    • Computer professionals – primary responsibilities involve application and/or design of computer programs or related systems (see job titles above)
    • Outside sales – primary duty must involve making sales or obtaining orders; regularly works away from place of business

In order to be exempt from the overtime requirement, an employee must satisfy all three tests. 

What are the requirements for overtime payment for non-exempt employees?

Employees who do not satisfy these tests are considered non-exempt and must be paid overtime at 1.5 times their regular hourly rate anytime they work more than 40 hours in a workweek. The workweek should be clearly designated in the employee handbook, for example: Monday 12:00 a.m. to Sunday 11:59 p.m. or Sunday 12:00 a.m.

Non-exempt employees may not waive overtime payment and may not be allowed compensatory time off in lieu of payment.

An HR professional can help business owners navigate workplace challenges. 

From hiring the right employees, running background checks, creating employee handbooks that include anti-harassment policies and procedures, and so much more, Next Level Solutions can work with you to provide the services that you need to run your business.

For more information about our accounting and human resource services, contact Next Level Solutions at info@nextlevelsol.net or (225) 330-8347.