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Overtime for exempt employees

Overtime for Exempt Employees


           According  to the Fair Labor Standards Act ("FLSA"), some employees are exempt from the payment of an enhanced rate of pay for each hour over forty (40) in a work week, also known as 'overtime'.  While employers are not required to compensate otherwise exempt employees, some employers choose to pay additional compensation to exempt employees for additional work.  In order to keep the exemption, employers need to provide this compensation carefully and in compliance with applicable laws.

Straight time pay of overtime for exempt employees

            Pursuant to Section 541.604 of the FLSA, an employer may provide an exempt employee with additional compensation beyond the employee’s regular salary without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guaranteed salary of at least $455 per week, without any deductions for time-off.   The additional compensation may be in the form of a bonus, flat sum, additional time off, or time and a half or straight time pay for all hours the employee works beyond a normal work week.  The normal work week can be defined by the employer as it determines is appropriate for the salaried employee and does not have to be in accordance with the requirements of the FLSA. Therefore, an employer can determine how many hours it wants to declare constitute a normal work week for salaried employees.  For instance an employer can have a policy that it will only pay straight time to employees for all hours worked over 50 hours per week, not the 40 hours as required for non-exempt employees. 

Federal government contractors: DFAR & FAR regulations

           The Federal Acquisitions Regulations ("FAR") state that the use of uncompensated overtime, “hours worked without additional compensation in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act,” is not encouraged.  Furthermore, if you are not going to pay overtime to exempt employees FAR Regulation 37.115-2 states that “when professional or technical services are acquired on the basis of the number of hours to be provided, rather than on the task to be performed, the solicitation shall require offerors to identify uncompensated overtime hours and the uncompensated overtime rate for direct charge Fair Labor Standards Act-exempt personnel included in their proposals and subcontractor proposals. This includes uncompensated overtime hours that are in indirect cost pools for personnel whose regular hours are normally charged direct.”  FAR 37.115-2. 

            This section suggests that under FAR the payment of overtime for exempt personnel is encouraged when the contract is based upon time and materials.  The FAR regulations also require that contractors abide by federal wage and hours laws regarding the payment of overtime to non-exempt employees.

            Compensating exempt employees as non-exempt by paying customary time-and-a-half pay can lead to a termination of the exemption and legal action against the employer. 



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