Pay Practices

There are various laws at both the state and federal level which dictate how employers must pay their employees. These laws set both minimum wage standards and premium pay (overtime) requirements. They also dictate many other payment-related practices such as how companies can compensate their employees, when employees must be paid, and what recordkeeping measures must be undertaken.

What is Overtime and when is it due

Usually, “overtime” refers to extra pay that is required when an employee works over a certain number of hours during a set time period. Most people are familiar with the federal law, where overtime pay is generally one and a half (1½) times an employee’s hourly rate of pay for all time worked over 40 hours in a workweek. However, some states have requirements that an employee must be paid overtime when he or she works over a certain number of hours in one day. Most companies run into problems with overtime by (1) not correctly understanding what is working time and what is not, (2) failing to include other forms of compensation (such as regular bonuses) into employees’ weekly pay to determine their true hourly rate, and (3) maintaining the correct records to demonstrate how an employee’s weekly pay was calculated.

Who is Entitled to Overtime

Most employees are entitled to overtime. Although there are some industry or job-specific exemptions from overtime, overtime eligibility is primarily determined by an employee’s duties. This means that an employee must have certain types of duties as their primary duties to be considered “exempt,” or not entitled to overtime. The method by which an employee is paid may be a factor in determining exempt status, but the fact that an employee is paid by salary or commission does not by itself make an employee exempt from receiving overtime. On the other hand, failure to pay the minimum salary amount to an employee whose duties would make him or her exempt can destroy that employee’s exempt status and entitle that employee to overtime pay.

Other Pay/Recordkeeping Requirement

There are many pay-related requirements employers must follow other than the minimum wage and overtime rules and regulations. If these requirements are not adhered to, companies can be subject to penalties, civil liability, or both. Examples of such requirements include, but are not limited to: written notices or pay calculation information that must be provided to employees; when such notices or information must be provided; limits on what deductions can be made from pay; prohibitions on certain costs being passed on to employees; extra pay for required uniforms; breaks based on the hours an employee works; extra pay for longer or multiple shifts in a day; and procedures for handling and distributing tips and gratuities.