Alabama Overtime Laws

September 14th 2024

Alabama does not have its own overtime laws; the state abides by the federal Fair Labor Standards Act (FLSA) when it comes to regulating overtime laws. These laws establish the criteria for determining overtime eligibility, the rate of overtime pay, and the obligations of employers to provide fair compensation to their employees. 

According to Alabama Labor Laws, if an employee works more than 40 hours in a week, they are entitled to receive overtime pay at one and a half times their regular rate of pay.

This article will provide information to successfully navigate Alabama’s overtime regulations, whether you’re an employer aiming for compliance or an employee defending your rights.

This article covers:

Alabama Overtime Rates

Alabama overtime rates determine the additional compensation that eligible employees are entitled to receive for working beyond a certain number of hours in a workweek. For any hours worked beyond a total of 40 in one work week, the majority of hourly employees in Alabama have the right to an overtime pay rate.

Overtime in Alabama is set at 1.5 times the regular hourly rate. Since Alabama’s regular minimum wage is $7.25 per hour, this makes Alabama’s overtime minimum wage $10.88 per hour. 

Overtime Entitlement in Alabama

According to Alabama overtime laws, overtime pay is required for any non-exempt employees. 

An hourly employee who earns below $844 a week ($43,888 per year) and works in a non-exempt industry is entitled to overtime pay.

However, an employee’s overall eligibility for overtime pay will be based on what the job duties are as well as what type of business they are in.

Read more about your Overtime Rights in Alabama and Overtime Exceptions and Exemptions in Alabama.

Overtime for Tipped Employees in Alabama

In Alabama, the overtime rate for tipped employees is 1.5 times their regular wage for every overtime hour worked. However, the use of a “tip credit” system, which permits employers to pay tipped employees a reduced minimum wage, is permitted by both state and federal legislation.

That being said, an employer cannot include that tip credit in the calculation of overtime pay. This means that the entire minimum wage (following the Alabama minimum wage, which is $7.25) must be taken into account when calculating overtime pay.

Overtime for Salaried Employees in Alabama

In Alabama, some salaried employees are entitled to overtime pay. A salaried employee is someone who receives a set amount of pay regardless of how many hours they work. 

To determine a salaried employee’s overtime rate, an employer must first determine their employee’s hourly rate by dividing the salary by the number of hours that salary compensates for.

Then, take the hourly pay rate to calculate the overtime rate for salaried employees using the following formula:

Hourly pay rate x Overtime Hours x Overtime Rate (1.5)

It is important to note that if an employee’s salary covers less than 40 (hours) in a workweek, their regular rate will be added for every subsequent hour working up to the 40. Only after 40 hours will time-and-a-half be counted.

If an employee’s salary covers 40 (hours) in a workweek, then time-and-a-half will be paid for any hours over 40.

Additionally, certain salaried employees in Alabama can also qualify for overtime pay under the Fluctuating Workweek Method (FWW). This means that nonexempt salaried employees who work different hours from week to week can still receive overtime pay. 

Read more about the Fluctuating Workweek Method (FWW) eligibility criteria.

Calculating Overtime with Commission in Alabama

Employees in Alabama who receive commissions are eligible for overtime at a rate of 1.5 times their regular hourly rate. Their regular hourly rate must include the commissions earned as well. However, they will only be given half of that rate for every overtime hour.

For example, let’s say an employee works 45 hours a week at a rate of $7.25/hour (Alabama minimum wage) and receives $50 in commissions for that week. We need first to calculate the new regular hourly rate: 

(Total hours x Hourly Rate) + Commission

= (45 x 7.25) + 50

= $376.25

Then, divide that by the total hours worked in the week.

= 376.25 / 45

=$8.36 (new regular hourly rate)

To determine the overtime rate for the commissioned employees, we need to take that new regular hourly rate and halve it.

$8.36 / 2

= $4.18

Since the employee worked an extra 5 hours in the week, that makes his overtime compensation $20.90 ($4.18 x 5 hours).

The amount will vary according to the hours worked, hourly rate, and commission earned.

Overtime Exceptions and Exemptions in Alabama

According to the U.S. Department of Labor (DOL), effective January 1, 2020, employees earning less than $43,888 annually are classified as nonexempt and are entitled to overtime pay. However, certain employees are exempt from this rule and do not qualify for overtime pay. These include:

  • Highly compensated employees earning over $107,432 per year
  • Executive, administrative, learned, and creative professional workers receiving a salary of at least $844 per week
  • Computer employees working on a salary basis with a weekly pay of no less than $844
  • Outside sales employees

It is important to note that “blue-collar” workers, including police officers, firefighters, paramedics, rescue workers, and similar community workers, are not exempt from the overtime rule. 

Additionally, employees working varying schedules, also known as the Fluctuating Workweek Method (FWW), are also not exempt from these overtime regulations. The DOL’s overtime rule serves as a valuable guideline for determining the eligibility of employees for overtime pay. By understanding the exemptions, employees can better understand their rights and ensure they receive the fair compensation they deserve. 

As of May 20, 2020, salaried employees who experience fluctuating working hours are entitled to receive overtime pay. For example, consider a salaried, non-exempt employee who earns $900 per week, regardless of whether they work 40 hours or less in a week, such as 35 hours. The fluctuating workweek provides an opportunity for salaried employees to receive overtime pay for hours worked beyond a standard 40-hour workweek. By understanding the criteria and eligibility for the FWW method, employees can ensure they receive fair and adequate compensation for their work. If this employee works over 40 hours in a given week, they are eligible to receive an overtime premium equal to one-half (0.5) times their hourly rate for each overtime hour worked. 

To be eligible for the FWW method, employees must meet the following criteria:

  • Have hours that vary from week to week
  • Receive a fixed salary, regardless of the number of hours worked each week
  • Earn an hourly rate equal to or above the federal (or state) minimum wage
  • Have a clear understanding of the terms and conditions of their work agreement

In addition to the FWW, eligible employees are also entitled to additional pay or benefits, such as bonuses, commissions, and hazard pay.

Beginning January 1, 2024, the state of Alabama has created a law to exempt full-time hourly employees from state tax on overtime earnings. Given that, if an employee works 46 hours a week, they only have to pay 5% income tax on 40 hours.

Statute of Limitations For Unpaid Overtime Claims in Alabama

According to Alabama overtime laws, employers can be held liable for any unpaid overtime wages for two years from the date the wages were earned.

However, for willful overtime violations by an employer, the statute of limitations can increase to 3 years.

Legal Cases Relating to Overtime Compensation in Alabama

Below, we present law cases relating to fair overtime compensation for employees in Alabama: 

1. Transportation Supervisor Filed for Overtime Back Wages After Statute of Limitations Ends

In the case of Seals v. Sylacauga City School Board, Nathaniel Seals filed a lawsuit in 2019 against his former employer, Sylacauga City School Board (‘the Board”), for failure to pay him overtime wages. Seals worked as a Transportation Supervisor from 2013 until his retirement in 2016.

Seal claimed that the Board had a policy of requiring him and other employees to work more than 40 hours per week without proper overtime compensation. The Board presented three arguments in favor of a summary judgment. First, they argued that the statute of limitations had expired on Seals’ claim. Second, they claimed that Seals’ position was exempt from mandatory overtime under the FLSA. Lastly, the Board contended that Seals lacked evidence to determine the amount of overtime owed to him.

The court determined that Seals could not prove that he worked unpaid overtime hours after January 2016, the cut-off date for the 3-year statute of limitations. Therefore, the court found Seals’ claims to be time-barred and did not address the other arguments presented by the Board.

Ultimately, a summary judgment was granted in favor of the Board and the court dismissed this case with prejudice, meaning that Seals cannot pursue this claim again in the future.

Key lessons from this case:
  • Employees must be aware of the applicable time limits for filing overtime claims, as exceeding the statute of limitations can result in the claim being time-barred.
  • Employees seeking overtime claims must prove that they worked unpaid overtime hours and were not properly compensated for the additional work.
  • If the court determines that a case is ineligible due to being time-barred (the statute of limitations has passed), the court may grant summary judgment without reviewing other factors in the case.

2. Collective Action Lawsuit was Filed Seeking Unpaid Overtime Compensation

In the case of Taunton v. Korens USA, Inc., Landon Taunton filed a lawsuit on behalf of himself and other similarly situated employees against his employer, Korens USA (Korens), for not providing overtime compensation for hours worked beyond 40 per week. Both sides of this lawsuit had jointly requested the court to conditionally certify the collective action, which meant allowing other affected employees to join this lawsuit and to approve the settlement agreement they had reached. 

The court found that all the potential employees appeared to be similarly situated to Taunton and thus granted conditional certification of the collective action, which allowed them to choose to join the lawsuit. A settlement agreement was proposed, which provided 100% of the damages owed to Taunton and the potential opt-in employees, including unpaid wages and liquidated damages. The settlement established a common fund from which all claims, attorney’s fees, and costs were to be paid. It set aside $8,500.00 from the common fund to cover reasonable attorney’s fees and costs.

In return for the damages received, Taunton and the other potentially involved employees agreed to release their claims related to the acts alleged in the lawsuit, including wage and hour claims under the FLSA. Ultimately the court granted the joint motion and settlement agreement and further dismissed the case with prejudice.

Key lessons from this case:
  • Unlike traditional class actions, FLSA collective actions require workers to affirmatively choose to participate by submitting written consents to the court. They are not automatically included.
  • Settlement agreements often include releases, which prevent employees from bringing future claims that relate to the specific allegations in the lawsuit, such as unpaid overtime.
  • Collective certification under the Fair Labor Standards Act (FLSA) gives employees who are similarly situated the chance to join a lawsuit and seek remedies for unpaid overtime wages.

3. Settlement Agreement Between Sound Director and Theater Owner for Overtime Back Wages

In the case of Livingston v. Birmingham Landmarks, Inc., Jeremy Livingston filed a lawsuit against his former employer, Birmingham Landmarks (owner of theaters), for allegedly violating the Fair Labor Standards Act (FLSA). Livingston claimed that he was employed as a Sound Director by Birmingham Landmarks but was misclassified as an independent contractor. He alleged that Birmingham Landmarks failed to pay him for the overtime hours he had worked. Additionally, Livingston claimed he was terminated in retaliation for complaining about his lack of overtime compensation.

Birmingham Landmarks denied employing Livingston as a Sound Director or receiving complaints about overtime compensation. They also denied retaliating against Livingston for his complaints regarding overtime pay.

After a court-conducted mediation, both Livingston and Birmingham Landmarks reached a settlement agreement, which they presented to the court for approval. The settlement included a payment of $17,500 to Livingston, which was inclusive of overtime back wages, liquidated damages, and attorney’s fees.

The court’s main concern is to ensure that the settlement is fair and reasonable and that the employer doesn’t take advantage of the employee. In this case, the court noted that there was a legitimate dispute between Livingston and Birmingham Landmarks. Both sides acknowledged the potential result of each side’s victory in this lawsuit and agreed upon a settlement that would benefit both of them.

The court ultimately approved the settlement between Livingston and Birmingham Landmarks, as it represented a fair and reasonable resolution of the dispute.

Key lessons from this case:

  • The case highlights the use of court-conducted mediation to facilitate settlement discussions between two parties. Mediation can provide an opportunity for resolution and avoid lengthy litigation.
  • The existence of a legitimate dispute between the parties is a crucial factor in determining the validity of a settlement.
  • This case demonstrates how both parties in a lawsuit can assess the potential risks and outcomes of litigation, leading them to pursue a settlement agreement as a strategic resolution.

Learn more about Alabama Labor Laws through our detailed 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.