Can an Employer Withhold Overtime Pay?

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Can You Ask an Employee to Give Up Overtime Pay?

The Fair Labor Standards Act (FLSA) requires that employers pay overtime to employees. If you run a business that employs qualifying workers, you cannot ask them to give up extra compensation earned by working more than a 40-hour week. Furthermore, you need to provide overtime payments without delay on the regular payday for the period.

There are exemptions and specific rules for salaried employees, and overtime regulations do not cover contractors. As a business owner, you need to understand the nuances of the law because even a single violation can lead to civil penalties. If you repeatedly and willfully break overtime payment laws, you could even face prosecution and imprisonment. Also, in addition to federal fines, you may face punishment for breaking state laws. 

Because it is illegal to ask employees to forgo overtime, it is important to have alternative payment options if you cannot cover the costs. 

Here is everything that you need to know about managing overtime pay.

What Is Overtime Pay?

The FLSA outlines the rules for overtime pay. A regular workweek consists of 40 hours. Any time worked beyond that amount is “overtime.” 

The law requires that employees receive at least time-and-a-half payment for these extra hours. For hourly employees, that means earning 1.5 times their regular wage. For example, someone normally making $20 per hour would get at least $30 per hour when they worked overtime. 

A workweek does not have to be Monday through Friday; it can be any set of consecutive days. However, once the workweek is established for an employee, you cannot change it or average hours worked over multiple weeks to avoid paying overtime.

Overtime rules only apply to the number of hours worked in a given workweek. The FLSA does not require employers to pay time-and-a-half for holidays or weekends. Some employers choose to do this on their own, but they are not breaking the law if they pay a regular wage to workers who show up on Thanksgiving or Christmas (unless doing so pushes them over 40 hours for the week). 

Employees Who Are Entitled to Overtime Pay

Employers need to pay employees overtime in most situations. Here are the employees who are entitled to overtime pay

  • Workers who produce or handle goods for interstate commerce;
  • Employees of a company that earns more than $500,000 in annual gross sales;
  • Employees who work in hospitals, nursing homes, or other healthcare facilities;
  • Law enforcement employees, firefighters, and other first responder personnel; 
  • Employees who work for government agencies;
  • Tradespeople and those involved in manufacturing, construction, maintenance, and other manual labor professions. 

Here are examples of employees who are exempt from overtime protections. In most cases, these professionals are only exempt if they earn more than $684 per week. 

  • Some retail, sales, or service professionals who receive a commission;
  • Managerial, executive, and administrative employees;
  • Learned professionals, such as lawyers, architects, engineers, and doctors (but not nurses);
  • Creative professionals;
  • Some computer professionals. 

Both federal and state agencies can enforce employment-related rules. 

Pertinent Laws

The FLSA governs overtime pay. This law was enacted by the U.S. Congress way back in 1938. There have been amendments over the years, but the original time-and-a-half overtime rule was a part of the original bill. 

The U.S. Department of Labor updates and clarifies regulations within the law regularly. For example, they increased the salary necessary to become exempt for overtime to $684 in 2019. 

The Department of Labor’s Wage and Hour Division manages enforcement of payroll-related laws, including overtime. If someone accuses you of not paying appropriate overtime, this agency will handle the investigation. 

Companies are subject to the FLSA regardless of their location. However, some states have additional employment laws. For example, California requires employers to pay double the standard wage if an employee works more than 12 hours per day or works eight hours per day for seven or more consecutive days. 

Other states have rules for specific industries or jobs. For example, taxi drivers in North Dakota need to work for 50 hours before qualifying for overtime, while healthcare workers in Minnesota need to work 48 hours to be eligible for overtime, but only if they expressly agree to it in their contract. 

In most cases, however, state rules align with the overtime laws laid out in the FLSA. 

Can an Employee Opt-Out of Overtime Pay Requirements? 

The FLSA stipulates that non-exempt employees must be paid time-and-a-half if they work more than 40 hours per week. As an employer, you cannot ask an employee to forgo overtime. Also, employees cannot voluntarily give up overtime to help an employer who might be struggling financially. 

Penalties for Refusing To Pay Overtime

Investigators from the Wage and Hour Division are stationed nationwide to investigate labor-related issues and allegations. 

Investigators typically decide whether the employer broke the rule because of ignorance or a mistake or whether they meant to break it. If the Wage and Hour Division determines that you violated FLSA regulations unwittingly, they will issue a notice and tell you what you need to do to be in compliance. 

However, those who knew the overtime laws and still didn’t pay non-exempt employees as required can face a civil penalty of up to $1,000 for each violation. Willful offenders who break FLSA rules repeatedly can potentially serve jail time. 

Also, the law prohibits the shipment of goods produced under unfair conditions (including low wages, a lack of overtime, or child labor). Violations could cause authorities to stop your business until you comply or pay the required fines. 

Options for Funding Overtime

As a business owner, you need to pay overtime to all non-exempt employees. This requirement can be challenging if you run a new business that has not yet reached its break-even point. 

The ideal solution to payroll and overtime issues is to look at your cash-flow statement and find adjustments that can help you have enough on hand to meet overtime payment requirements. However, this is not always a realistic option. Here are other ways to fund overtime. 

  • Open a line of credit: A line of credit lets you borrow and repay from a lender on an as-needed basis. If you have unpredictable overtime patterns, this can be a flexible option. 
  • Get a loan: A business can apply for a general loan to help with startup costs. It is acceptable to use these funds to cover overtime and payroll until you become profitable. However, a lender would likely not give you a loan just to cover overtime costs. 
  • Work with a factoring service: In some industries, it makes sense to work with a factoring service to help you cover payroll costs. For a fee, these services take over outstanding invoices and provide you with cash that you can use to cover payroll costs. 
    • Like a line of credit, factoring services are very flexible and can offer access to quick cash. This option makes sense for employee-centric businesses, such as medical staffing agencies and home healthcare providers, which often have outstanding invoices that they can use to work with a factoring service. 

If you opt for one of these solutions, you will need to adjust your profit and loss statement. The interest rates from borrowing money or fees from factoring are expenses that you need to account for when balancing your books.