Overtime Compensation

Article Index:


The following article may not apply to all situations. If you are in doubt about any point or need clarification of your situation, please feel free to call our office.

Dealing with overtime issues requires an understanding of the definitions of workweek, time worked, compensatory time and covered/noncovered employees under the provisions of the Fair Labor Standards Act (FLSA). FLSA establishes minimum wage, overtime pay, record-keeping and child labor standards that affect more than 80 million full- and part-time workers in the private sector and in federal, state and local governments.


FLSA basic overtime provisions

Nonexempt employees are included in FLSA regulations and have the full protection of the law. Exempt employees (who must meet specifically designed criteria) are excluded from FLSA minimum wage or overtime requirements. The law recognizes four classifications of exempt employees and outlines both a "short" and "long" test for determining whether an employee falls within the classification. For assistance in determining exempt or nonexempt, feel free to consult with our staff at Ahlberg & Company at any time.

All nonexempt workers must be paid one and one-half times their regular rate of pay for hours worked in excess of 40 hours in any. The regular rate of pay includes basic pay plus nondiscretionary bonuses, shift premiums, production bonuses, and commissions. It does not include other supplemental earnings such as discretionary bonuses (not included in a union contract), employer's contributions to benefit plans, pay for unworked hours, or small noncash gifts on special occasions (generally valued under $25, such as a holiday turkey).

Overtime is paid on time worked, not time compensated. Therefore, no overtime must be paid on sick pay, holiday pay, vacation pay, jury duty pay, or similar compensation for unworked days. Some organizations, however, do voluntarily treat such time as time worked for the purposes of determining overtime pay.

A workweek is any fixed, recurring period of 168 consecutive hours (7 days x 24 hours = 168 hours). An employer's workweek may begin on any day of the week.


What is time worked?

Since overtime covers only time actually worked, a key question is when the workday actually begins and ends. If the employee is preparing to work but not doing anything productive, must these hours be included in the overtime calculation? Some of the general rules are defined by the Portal-to-Portal Act (1947), but many of the situations are determined case by case in the courts.

It is important to recognize that the law says that the employer "shall not permit" employees to work overtime (over 40 hours per workweek) without the payment of an overtime premium. The intent was to discourage overtime and promote employment as a Depression-recovery mechanism. The employer is precluded from using the defense that the employee volunteered to work overtime. Frequent causes of appeals are periods before and after work as well as work taken home by nonexempt personnel.

Here are some general guidelines. If you are in doubt about any of the issues presented in this article, we recommend that you consult with us at Ahlberg & Company in order to clarify the issue.

Waiting to work. If the employer restricts an employee's activities and does not allow any personal business, then the hours are included in overtime. However, the FLSA does not require employers to pay overtime when an employee is off the premises and is merely asked to stay by the telephone or respond to a beeper.

Preparing to work. An employer does not have to compensate employees for insignificant amounts of time spent preparing for work at the beginning of the day or cleaning up at the end of the day. Nor do they have to pay when an employee arrives early and is waiting for the shift to begin. However, the clock starts as soon as the shift begins, even if there is no work.

Meals and breaks. The FLSA does not require an employer to provide rest or meal breaks. Rest periods of 5 to 20 minutes are considered hours worked. Bona fide meal periods of 30 minutes or longer are not considered hours worked.

Travel time. According to FLSA, travel time to and from work is generally noncompensable. However, employees who drive vehicles, which contain essential tools or equipment of the employer from their homes to work sites, may be working while traveling. Travel from home to a customer's site in response to an emergency call after the regular workday is work time.

Employees who travel in the course of a workday, such as from one work location to another, are entitled to compensation for their travel time. For example, an employee who reports to a home office to obtain instructions or to transact some sort of business is considered to have performed some work and the employee's subsequent travel to a job site will be considered work time.

Travel out of town may also comprise work. When an employee who normally works at one location is sent out of town on a single-day trip, the time which is spent traveling is work time. However, the employer may consider the time, which is spent traveling to and from the airport or other transportation terminal in the morning and evening to be the equivalent of the home-to-work commute and not compensable work time.

An employee travels away from home overnight is not working when the employee is a passenger on an airplane, train, boat, bus, or automobile outside of the employee's regular work hours. Any time that the employee spends traveling, as a passenger on a weekend will be counted as work time if the travel cuts across the hours which the employee would normally work during the week. Any time which an employee spends working while a passenger must be counted and paid as work time.

All travel that is compensable by contract, custom, or practice must be counted as work time, regardless of the above limitations on counting travel as work time. Providing compensation for travel will make the travel into work time only during the portion of the day for which compensation is provided.

Training time. Training time is generally included. However, the time spent at a conference, meeting, or seminar does not have to be compensated if four conditions are met.

Compensatory time

In general, overtime must be paid in cash. However, public sector employers and, under some conditions, private employers may grant compensatory time off instead of cash.

The rate is the same as for cash - one and one-half hours off for every hour over 40 worked during the workweek.

Public employees can accumulate "comp time." When taking the time off, they must be paid their normal rate of pay. Most public employees can accumulate 240 hours.

In the private sector, the practice of allowing "comp" time must be part of an established plan. Furthermore, the time off must be taken during the same pay period. If this cannot be arranged, private employers must pay cash overtime.


FLSA compliance requirements

Both private and public employers must comply with the FLSA.

Coverage-private sector. Private sector employers engaged in interstate commerce and retail service firms with two or more employees and gross sales of at least $500,000 per year are covered by the FLSA.

Coverage-public employees. The act also covers most federal, state and local government's personnel (except for the military).

Record keeping. Basic employment records (name, address, sex, date of birth, occupation, pay, hours worked on a weekly basis) must be kept for three years. Time clock records are not required to be kept as long as separate records are maintained.

Enforcement. The Wage and Hour Division has broad powers to enforce the FLSA minimum wage and overtime provisions or prevailing rates for contractors subject to the Davis-Bacon Act/Service Contract Act. Equal pay provisions, however, are enforced by the EEOC.

Investigating claims. A complaint may be initiated by any employee covered by the FLSA. An investigator will visit the work site of the claimed infraction and review the employer's pay practices and status determinations. A conference is held to discuss a settlement. If none is agreed to, the employer can be taken to court.

Penalties. Penalties for violations can include up to two years of back pay (three years for will violations) and, under certain circumstances, doubling of the overtime premium. Federal contractors may be debarred from future contracts. The statute of limitations is two years for unintentional violations and three years for willful ones.


When state law differs

While the FLSA defines a great deal about the employer-employee relationship, its powers are not infinite. Questions such as pay frequency, severance or vacation pay, or the disposition of unclaimed (escheat laws), if regulated at all, are governed by the states.

In addition, some states have passed legislation that is more generous than the federal guidelines. For example, a state may require a higher minimum wage that the federal government.

The rule of thumb is whenever state and federal laws overlap, employers should comply with the standard that provides employees with the most protection. Thus, if the state minimum wage is $4.50 and the federal minimum is $4.25, employers in that state must pay employees at least $4.50 per hour.

The following District of Columbia, Maryland and Virginia requirements and provisions are stated verbatim from The Bureau of National Affairs, Inc. Payroll Administration Guide. If you need clarification on any point, please contact Ahlberg & Company at (703) 461-7300.


District of Columbia

Maximum Hours before Overtime - 40-hour week. Special rule: 160 hours during any 4-week period for automobile washers whose employer has more than half of annual dollar sales volume from car washing.

Overtime Pay - 1 1/2 times regular pay for hours in excess of maximum.

Employees Covered - All employees, except: federal or city employees; unpaid volunteers with educational, or non profit organization; lay persons active within religious organization; casual babysitters; those in bona fide executive, administrative, or professional capacity; outside salespersons; those in home delivery of newspapers; seamen; railroad employees; salespersons, partspersons, and mechanics engaged in retail auto, truck, or trailer sales; automobile washers where more than half of employer's business is derived from such activity; parking lot or garage attendants; air carrier employees voluntarily exchanging workdays for air travel benefits; employees of retail or service establishment who earn at least 1 1/2 times the minimum hourly rate and more than half of who’s compensation comes from commissions. The U.S. Court of Appeals held that bus drivers who regularly spend a substantial part of their workweek in the District are covered by the District's overtime provisions. (Williams v. Transit Co., 20 WH Cases 770, CA DC, June 30, 1972)

Limits on Hours Worked - No provision.

Day of Rest - No general provision.

Meal or Rest Period - No general provision.

Reference - District of Columbia Code, Title 36, Chapter 2; §36-202(5), 36-203©, 36-204(a), (b); Wage Orders.



Maximum Hours before Overtime - 40-hour week. Special rule: 48 hours for employees of hotel, motel, restaurant, bowling establishment employees, or institution (except hospital) caring for sick, aged or mentally ill or defective persons. 60-hour week for agricultural workers exempted by FLSA. Work time for state employees includes their travel time to and from work after being called to work by the appointing authority or designated representative on the employee's scheduled off if the employee works fewer than eight hours as a result of being called on his/her day off. Travel time is also considered time worked if a state worker is called back to work later in the same day, having already completed a normal work day.

Overtime Pay - 1 1/2 times regular pay for hours in excess of maximum.

Employees Covered - All employees, except; employees of amusement or recreational establishments (except certain theater and music establishments) if not operated more than seven months in a calendar year and if average receipts for other six months; those covered by Federal Motor Carrier Act or Part I of Interstate Commerce Act; salespersons, partspersons, or mechanics primarily selling or servicing automobiles, trailers, trucks, or machinery in nonmanufacturing firm; taxicabdrivers; country club employees; those working for nonprofit employer furnishing temporary at-home services for sick, aged, mentally ill, or handicapped; those in bona fide executive, administrative, or professional capacity; volunteers in educational, charitable, religious, or nonprofit organization where no employer-employee relationship; those in establishment selling food and drink for consumption on premises with annual gross income of $250,000 or less; employees of movie theaters; those processing or packaging poultry, seafood, or fresh produce or horticultural commodities; outside salespersons and those on commission; employer's parent, spouse, child, or other immediate family member; students in public school special education programs for mentally, emotionally, or physically handicapped employed as part of training; nonadministrative day camp personnel.

Limits on Hours Worked - Railroads; 8-hour day for telephone and telegraph operators handling train movements under "block system," except when less than nine passenger trains or less than 20 freight trains each way in 24 hours. Cotton and wool manufacturing; 10-hour day for employees manufacturing cotton or woolen yarns, fabrics, or domestics, except during repairs, improvements, firing up, and readying machinery. Tobacco Warehouses (Baltimore only): hours from 7 a.m. to 12 noon and 1 p.m. for tobacco warehouse employees.

Day of Rest - Retail and wholesale establishments may conduct business on Sunday if employees (other than managers, professional or pat-time employees) may choose employee's Sabbath or Sunday as a day of rest, except in emergency. Merchant may not be required, directly or indirectly, to open place of business on Sunday. Special laws and exceptions listed for each country. Except in cases of emergency, non-managerial employees in retail establishments operating on Sunday shall be entitled to choose their Sabbath as a day of rest upon filing of written notice with employer.

Meal or Rest Period - No general provision.

References - Maryland Annotated Code; §83(3) (maximum hours before overtime and overtime pay); §82(d) and (e) (employees covered); §§1-3, 237 and 239 (limits on hours worked); § 493 (a) and (b) (day of rest).



Maximum Hours before Overtime - No state provision.

Overtime Pay - No provision.

Employees Covered - No provision.

Limits on Hours Worked - No provision.

Day of Rest - No person shall engage in work, labor, or business or employ others to engage in same on Sunday, except works of charity conducted solely for charitable purposes by any person or nonprofit organization. Exceptions: transportation; public services and utilities, manufacturing, processing and plant operation of all types; publishing; servicing, fueling and repair of motor vehicles, boats and aircraft; motion picture theaters; radio and television programs; medical and other emergency services; sports events; historic, entertainment and recreational facilities; sale or rental of boats and swimming, fishing and boating equipment; agriculture; preparation and sale of drugs and health supplies; wholesale food warehouses; restaurants and delis; janitorial services; hotels, motels, funeral homes and cemetaries; mining facilities; sale of food, ice, beverages, and tobacco; sale of novelties, film antiques art, souvenirs, pets; sale or leasing of noncommercial property; providing services and products not requiring labor of any person. Except in emergency, employer shall allow employee at least 24 consecutive hours of rest in each calendar week in addition to regular rest periods normally allowed or legally required in each workday. Nonmanagerial employee upon written notice is entitled to choose Sunday as a day of rest; however, nonmanagerial employee who conscientiously believes that the seventh day of the week ought to be observed as a Sabbath and actually refrains from all secular business and labor on that day shall be entitled to choose the seventh day of the week as a day of rest. Provision not applicable to persons engaged in certain specified industries or businesses.

Meal or Rest Period - No general provision.

References - Virginia Minimum Wage Act; §§18.2-341, 40.1-28.1, 40.1-28.2.



© 2008 Johnson, Bremer & Ignacio, CPAs, P.C. All rights reserved.
Website Maintained by MDA Technologies Group

3959 Pender Dr., Suite 112
Fairfax, Virginia 22030
Fax (703) 934-6654