As a business owner, it’s important to make sure that you’re compensating your employees for all time worked—and that includes overtime hours.
But overtime rules can vary from employee to employee—and while some employees are eligible for overtime pay, others are not.
So, what about salaried employees? Are salaried employees eligible for overtime? If so, when? And, as a business owner, how can you determine whether you need to be paying your salaried employees overtime?
Are Salaried Employees Eligible for Overtime?
Let’s jump right in—are salaried employees eligible for overtime?
And the answer is—it depends.
Under the Fair Labor Standards Act (FLSA), any employee that’s categorized as an exempt employee is ineligible for overtime pay—even when they put in more than 40 hours of work in a week. Because many salaried positions are categorized as exempt, they would fall under the overtime exemption umbrella—and, as such, not be entitled to overtime pay.
So, for example, let’s say you employ a marketing manager that’s categorized as an exempt employee and is paid on a salary basis of $52,000 per year (or $1000 per week). It doesn’t matter if that marketing manager works 34 hours one week, 42 hours the next, 38 hours the following week, and 55 hours the final week of the month/pay period. Because they’re exempt, salaried employees, you would pay them their $1000/week salary for all four pay periods, regardless of the number of hours worked—and no overtime pay is required.
So, if your employee is both salaried and classified as exempt, they are not entitled to overtime pay. But there are situations where salaried employees would be eligible for overtime pay—and as an employer, it’s important to understand the relevant overtime rules and when you need to be paying for overtime hours.
When Salaried Employees Are Eligible for Overtime
Under federal law, all nonexempt employees are eligible for overtime pay at one-half times their regular rate of pay—and, as such, if a salaried employee is considered nonexempt, they’re entitled to overtime wages
To be considered exempt from overtime pay, salaried employees must:
- Have a salary above the U.S. Department of Labor’s (DOL) minimum salary threshold of $684 per week (which is the equivalent of $35,568 per year), AND;
- Meet the qualifications for one of the FLSA’s overtime exemptions
The Federal Fair Labor Standards Act overtime exemptions are based on job duties, with the primary duty and responsibilities of a role determining whether that role qualifies for an exemption. Overtime exemptions under the FLSA include:
- Executive exemption
- Administrative exemption
- Professional exemption
- Computer employee exemption
- Outside sales exemption
- Highly compensated employees exemption
So, if an employee’s salary is above $35,568 per year (or $684 per week) and their job duties qualify for an overtime exemption, then you could classify that employee as exempt—and they wouldn’t be entitled to overtime pay. But if they don’t meet both criteria, they’d qualify as nonexempt and be eligible for overtime pay.
So, for example, let’s say you hire a receptionist. A receptionist role would qualify under the administrative exemption according to the Department of Labor, but whether they’re qualified for overtime pay would be dependent on their salary. If their salary is more than $684 per week, they would be considered exempt and ineligible for overtime pay. But if you hired the receptionist at a salary of $500 per week, they wouldn’t meet the minimum salary requirements—and would be entitled to overtime pay for any hours over 40 in a workweek.
Keep in mind that, under the FLSA, the overtime exemptions, minimum salary threshold, and duties tests only apply to white-collar jobs—and not blue-collar workers or police officers, firefighters, or first responders. Also, your state may have additional overtime regulations that could impact whether salaried employees are eligible for overtime pay, so make sure to refer to any relevant state laws to ensure that you’re providing overtime provisions for all eligible employees—including employees paid on a salary basis.
Calculating Overtime Rates for Salaried Employees
Now that you know when salaried employees are entitled to overtime wages, let’s jump into how to calculate their overtime rate of pay.
The way you calculate overtime rates for salaried employees is a little more involved than calculating overtime for hourly employees. For employees paid on an hourly basis, their overtime rate would be one and a half times their hourly rate; so, if you were paying a nonexempt hourly employee $20 per hour, their overtime rate would be $30—and you would have to pay them $30 per hour for every hour worked in excess of 40 in a single workweek.
For nonexempt employees with a fixed salary, there’s one additional step. First, you would determine the employee’s regular rate of pay by dividing their weekly salary by the number of hours that salary is meant to cover—and then multiplying that number by 1.5.
So, if you had a salaried employee that was entitled to overtime with a weekly salary of $700—and that $700 salary was meant to cover 40 hours each week—you would divide their $700 salary by 40 hours to get their regular rate of pay—$17.50. From there, you would multiply their regular rate of pay by 1.5 to get their overtime rate—which, in this scenario, would be $26.25 ($17.50 x 1.5). So, for any hours that employee works in excess of 40 in a workweek, they’d be paid $26.25 per hour.
You can do all of this automatically with the right tool. For example, Hourly, keeps track of all your team’s hours and calculates pay in real-time. Employees can clock in and clock out from wherever they are in just a few clicks—no paper timesheets required. Since the Hourly platform incorporates time tracking data with payroll, your employees are automatically compensated for their overtime hours each pay period. Hourly also syncs your current payroll data to workers’ comp, calculating premiums with to-the-penny accuracy. But no need to switch all three right away, you can start with time tracking and add features as you go.
Can a Salaried Employee Refuse to Work Overtime?
As an employer, under the FLSA, you have the right to terminate any employee that refuses to work overtime—including salaried employees.
However, it’s important to remember that exempt salaried employees are paid the same amount regardless of how much they work—and, as an employer, you don’t want to abuse that. If you assigned an employee a salary based on a 40-hour workweek, don’t make them work 55 hours every week; otherwise, you could find yourself with a serious employee retention problem.
Make Sure Your Business Is Compliant with All Overtime Laws
Bottom line? As a business owner, it’s important to make sure you’re in full compliance with all relevant overtime and labor laws—and that includes paying overtime to eligible salaried employees.
If you’re not sure if your salaried employees qualify for overtime pay, talk to a labor attorney; that way, you can be sure that you’re paying your employees appropriately—and aren’t unknowingly violating any overtime laws (and putting your business at risk in the process).