The Fair Labor Standards Act of 1938 sets out guidelines and rules that govern working conditions, overtime pay and employee classification. Employee classifications, according to the FLSA, pertain to exempt vs. non-exempt status. The three primary groups of workers are hourly non-exempt, salaried exempt and salaried non-exempt employees. The major difference among the three groups concerns who receives overtime pay and who doesn't.
Many believe the only distinction among employees is who receives a salary and who receives an hourly wage. However, the real distinction pertains to who earns overtime pay for working more than 40 hours in a week. Employees who are paid by the hour aren't the only workers who receive overtime pay. Some salaried workers are entitled to overtime pay.
Exempt classification is what determines whether an employee receives overtime pay. Employees who are considered exempt are exempt from the FLSA overtime rules: They aren't entitled to overtime pay. Exempt status applies to employees who are involved in the management of the business and who generally perform non-manual work. The FLSA exempts workers who hold executive, administrative, professional, outside sales or computer-related jobs. The criteria that apply to most of the exemptions require that the employee exercise independent judgment in the majority of his job duties. Other criteria apply to employees who supervise at least two full-time employees or employees who are considered highly compensated or own a share of the business.
All exempt employees are salaried; however, all salaried employees aren't exempt. There's yet another classification of salaried employees who do receive overtime pay. These are salaried, non-exempt workers who are paid a fixed rate for an agreed-upon number of hours each week. When salaried, non-exempt employees work more than 40 hours in a workweek, they receive overtime pay that's 1.5 times their equivalent hourly rate. Some employees who are quoted an annual, monthly or weekly salary but who don't routinely exercise independent judgment are considered non-exempt employees.
The method of calculating overtime for a salaried non-exempt employee requires that you know the employee's precise salary amount and the number of hours for which that salary is paid. Remember, the FLSA requires overtime for working more than 40 hours in a workweek. In this case, it's quite simple to calculate the overtime pay for an employee who receives a fixed salary for working 40 hours in a week. You need only divide the annual salary by 2,080 working hours in a year and multiply the resulting figure by 1.5 to get the overtime rate. However, there are some employees whose workweek consists of just 35 hours or 37.5 hours. In this case, calculating overtime requires an extra step or two.
For example, if the salaried, non-exempt employee works for an organization that has a 35-hour workweek and earns $50,000 per year, the weekly salary equals $961.53. The hourly rate for this employee is, therefore, 961.53 divided by 35, or $27.47. Since the overtime pay rule applies only when the employee works more than 40 hours in a week, she would receive straight-time pay for the five-hour difference between her 35-hour workweek and the 40-hour workweek set out in the FLSA rules. If this employee worked a 48-hour week, she is entitled to overtime pay for eight hours. Her overtime rate would be $27.47 multiplied by 1.5, which is $41.21.