In the United States, 40 hours is the number of hours in what is considered to be a standard workweek. Although most businesses operate from Monday through Friday, a 40-hour workweek includes any combination of hours, and any hours more than that are considered overtime. Around the world, most countries work 40-44 hours in a typical workweek. France is an exception, and they have been working 35-hour workweeks since the “Aubry 2” law in 2000. The 40-hour workweek became US law in 1940 under the Fair Labor Standards Act (FLSA).
Once an employee works more than 40 hours in a workweek, the FLSA dictates their hourly pay rate be increased to 1.5 of their normal hourly pay rate (also known as time and a half). Someone making $10 per hour, for example, would be paid $15 per hour for every hour worked in excess of the 40-hour standard workweek.
The exceptions (or exemptions) to being paid extra money after working more than 40 hours are people meeting all three of the following criteria:
1) Someone earning a salary, which is a set amount of money per week, regardless of hours worked
2) Someone making $684 per week or more ($684 per week)
3) Someone whose job duties are considered exempt (usually administrative, executive)
Salary Exempt Employees
In January 2020, the Department of Labor enacted a new final rule regarding the standard salary level making 1.3 million Americans eligible (nonexempt) to receive overtime pay. For any employee to be considered exempt, they must be paid at least $684 each week ($35,568 per year) which is up from the previous level of $455 per week ($23,660). The annual compensation level for highly compensated employees (HCE) increases from $100,000 to $107,432.
Minimal Duties Test and HCEs
A highly compensated employee (HCE) is subject to a “minimal duties test” and is exempt from overtime rules. Investopedia defines them as:
- Owned more than 5% of the interest in a business at any time during the year or the preceding year, regardless of how much compensation that person earned or received
- Received compensation from the business of more than $130,00 if the preceding year is 2020 or 2021, and, if the employer so chooses, was in the top 20% of employees when ranked by compensation1
Examples of HCEs include administrators, a specific category of computer employees, outside salespeople, and executives. To qualify for this exemption, they must be receiving a salary of at least $107,432 per year and satisfy the minimal duties test. This means their main duties are always office or non-manual (white-collar) work. Doctors, clergy, lawyers, and accountants are examples of HCEs.
What hours at work are not counted?
An employer should only consider hours that were actually worked by an employee. If an employee is on any sort of break when they are not working such as a lunch break, that time would not be counted.
What about comp time?
Some employers mistakenly believe that if an employee works more than 40 hours one week, they can have that employee work less than 40 hours by the same number of hours the next week in order to avoid overtime. For example, if an employee works 42 hours in a week, they would work 38 hours the next week and not be paid overtime. This is not how overtime works and does not comply with overtime rules and laws.
Are overtime rules the same in different states?
Most states follow federal overtime laws, but many have their own variations. For example, in Colorado, you’ll get paid overtime for working more than 12 hours in a workday even if the week’s total is 40 hours or less. If the state law is different, it is always in the employee’s best interest.
Employers will often pay the overtime rate of 1.5 of a regular hourly salary if the employee works during a holiday, such as Thanksgiving or Christmas. Because some holidays are so family-oriented, the higher rate of pay is used to compensate for keeping an employee from being with their family. And since most employees want certain holidays off, an employer can entice an employee to work by paying time and a half. Sometimes, employers will apply the ‘time and a half’ rule to nights and weekends, but they are not legally obligated to.
Reasons for Overtime Laws
Overtime laws are in place to protect employees from unfair work practices. They are designed to a) keep desperate workers from working unusually long hours b) promote employment among many workers instead of only a few, and c) give employees who work overtime appropriate compensation to make up for the physical and mental toll taken for working more than 40 hours. These laws separate us from certain countries that have lax and inhumane labor laws.
Does your small business need extra funding? Affinity Beyond Capital (ABC) can help. ABC offers an expansive number of funding options for businesses, professional services, retail, wholesale, manufacturing, agriculture, and more. Give one of our expert lending professionals a call today at (833) 234-6489.