1. The Three-Part FLSA Exemption Test
Under federal law, an employer cannot simply declare that an employee is "exempt" from overtime. An employee is only exempt if their position meets all three of the following Department of Labor criteria:
Salary Basis
The employee must be paid a predetermined, fixed salary that does not fluctuate based on quality or quantity of work.
Salary Level
The salary must meet or exceed the federal and state statutory minimum thresholds (higher in states like California and New York).
Job Duties
Actual primary duties must involve executive management, administrative discretion, or learned professional knowledge.
2. How the "Regular Rate of Pay" is Calculated
Overtime pay isn't just based on your base wage if you receive non-discretionary bonuses, shift differentials, or commissions. The FLSA requires employers to calculate the Regular Rate of Pay:
Example: A worker earns $20/hour and works 50 hours in a week, plus receives a $100 attendance bonus. Their total straight-time compensation is $1,000 + $100 = $1,100. Their regular rate is $1,100 ÷ 50 hours = $22.00/hour. Their 10 overtime hours must be paid at 1.5 × $22.00 = $33.00/hour.
3. Common Employer Overtime Violations to Watch Out For
- ✕Misclassification as Exempt: Giving an employee a title like "Assistant Manager" or "Lead Associate" while having them perform routine non-exempt tasks (stocking, cashiering) to avoid paying overtime.
- ✕Off-the-Clock Work: Requiring employees to boot up computers, attend pre-shift meetings, clean workstations, or respond to emails outside scheduled shift hours without pay.
- ✕Automatic Lunch Deductions: Automatically deducting 30 or 60 minutes for meal breaks when the employee was actually working through their shift or interrupted by phone calls.
- ✕Averaging Hours Over Two Weeks: Paying a worker for 80 hours across two weeks when they worked 50 hours in week 1 and 30 hours in week 2. Overtime is strictly calculated on a single workweek basis under FLSA.