Overtime for Salaried Employees in the US

In the United States, the issue of overtime pay for salaried employees remains a contentious topic, affecting millions of workers across various industries.

While the Fair Labor Standards Act (FLSA) outlines clear guidelines regarding who qualifies for overtime, the application of said laws remains an intricate process that considers various elements including exemption and rates.

This article breaks down and simplifies the complexities of overtime regulations for US salaried employees, and the implications for employees and employers.

This Article Covers:

Do Salaried Employees Qualify for Overtime in the US?

Not all salaried employees qualify for overtime in the US. Under the FLSA, salaried workers are classified as exempt or non-exempt based on specific criteria.

Exempt employees do not qualify for overtime.

To be considered exempt (and not eligible for overtime), salaried employees must meet three main criteria:

  • Salary Basis Test: Employees must receive a fixed, predetermined salary that doesn’t vary based on hours worked each week.
  • Salary Level Test: As of July 1, 2024, salaried employees must earn a minimum salary of $844 per week (or $43,888 annually) to be considered for exempt status.
  • Duties Test: To qualify as exempt, employees must have primary responsibilities in executive, administrative, or professional roles.

*It’s worth noting that there are also certain jobs that are exempt from overtime in the US, such as airline staff, salespeople, computer professionals, and certain agricultural and railroad workers.

Employees who don’t meet all three conditions are considered non-exempt and are eligible for overtime pay. 

This structure ensures that salaried employees aren’t automatically excluded from overtime. Instead, their eligibility depends on specific roles and salary requirements.

What is the Overtime Exemption Rate for US Salaried Employees?

As of 2024, the federal exemption rate for salaried employees in the US is $844 per week or $43,888 annually under the FLSA. 

This rate applies to employees in executive, administrative, or professional roles, exempting them from overtime pay if they meet the duties criteria.

Some states, like California and Washington, set higher exemption rates. 

For example, California’s rate is $1,280 weekly ($66,560 annually). Employers must follow whichever rate (federal or state) provides higher compensation. 

Many states use the federal rate, and updates are likely to take effect across several regions by January 1, 2025.

How is the Overtime Rate Determined for Salaried Employees in the US?

For salaried non-exempt employees, overtime is required for any hours worked over 40 in a week. 

The Fair Labor Standards Act mandates that these extra hours must be paid at 1.5 times the employee’s regular hourly rate, often called “time and a half”.

To calculate the regular hourly rate, employees must take their weekly salary and divide it by the number of hours it is meant to cover. (Note: If this hourly rate falls below the federal minimum wage of $7.25, adjustments may be needed.)

Once the regular rate is established, any hours beyond 40 a week are paid at 1.5 times this rate. 

For instance:

  • A non-exempt employee earns a weekly salary of $700, which covers 35 hours.
  • Their regular hourly rate would be $20 ($700 ÷ 35). 
  • If they work 45 hours weekly, the 5 hours over the standard 40 would be paid at $30 per hour (1.5 x $20). 
  • So, for those extra 5 hours, they’d earn an additional $150 ($30 x 5).

Check out How to Calculate Overtime Pay for Hourly and Salaried Employees for a full breakdown.

Which Laws Govern Salaried Employee Overtime in the US?

The primary law governing salaried employees’ overtime in the US is the Fair Labor Standards Act of 1938 (FLSA). 

This federal law sets the overtime rules and defines which salaried employees qualify based on job duties and salary threshold. 

The FLSA also requires employers to keep accurate records of employee hours and wages for at least three years, including pay rates and overtime calculations. 

If an employer fails to follow FLSA guidelines, such as by withholding overtime pay or misclassifying workers, they could face penalties, including fines and back pay obligations for affected employees.

Willful violations may result in fines of up to $1,100 per violation and even higher penalties, up to $11,000, for repeat offenses—along with back pay obligations for affected employees. In extreme cases, repeat offenders may also face imprisonment.

The Wage and Hour Division within the U.S. Department of Labor is responsible for enforcing these laws.

It also investigates potential violations and takes corrective action when necessary to protect workers’ rights. 

Many US states also have their own overtime laws, sometimes with stricter standards than the FLSA. Employers must follow whichever law (federal or state) offers greater protection to employees.

Legal Cases on Overtime Violations in the US

1. Misclassifying Employees as Exempt Costs Plumbing Supplier $3.2M in Overtime

In the case of Su v. F.W. Webb Co., the U.S. Department of Labor took legal action against F.W. Webb Co. (Webb), a plumbing supply company headquartered in Bedford, Massachusetts, for misclassifying over 700 inside sales representatives as exempt administrative employees.

These inside sales representatives were essential to Webb’s wholesale operations, responsible for selling plumbing and HVAC supplies to contractors and industry professionals. 

Despite their sales role, they were classified as administrative employees, an exemption generally intended for salaried roles that involve high-level administrative duties supporting the business’s operations. 

This classification allowed the company to avoid paying overtime wages for hours worked beyond the standard 40-hour workweek. 

The Department of Labor’s investigation concluded that the sales representatives’ primary role, which was directly selling products, did not meet these criteria, thereby excluding them from the administrative exemption and entitling them to overtime pay under the Fair Labor Standards Act (FLSA).

Webb also failed to maintain adequate and accurate records of employees’ working hours, as required by the FLSA.

The U.S. District Court for the District of Massachusetts ruled in favor of the Department of Labor, concluding that Webb must pay $3.2 million in back wages. 

Besides, the court prohibited Webb from unlawfully retaliating against employees who exercise their rights under the FLSA.

Key Lessons from the Case:
  • Misclassification of employees as exempt from overtime has significant financial and legal repercussions for employers.
  • Proper employee classification under the FLSA and accurate recordkeeping is indispensable to comply with wage laws and avoid penalties.
  • Fair pay for salaried employees upholds workers’ rights and reduces legal risks under the FLSA.

For further insights on overtime regulations, read our Understanding US Overtime: Employees and Employers Guide.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.