Jose is a waiter. He typically works 50 hours per week in exchange for minimum wage plus tips. Is he entitled to overtime?
Elsa is the restaurant manager where Jose works. She also works 50 hours per week and makes $36,000 per year. Is she entitled to overtime?
Anna is a marketing manager. She creates advertisements, monitors industry trends, and develops marketing campaigns. She works 50 hours per week and makes $50,000 per year. Is she entitled to overtime?
Before we answer those questions, let’s first get a lay of the land.
Federal law creates two categories of employees: Those entitled to overtime pay if they work more than 40 hours in a week (non-exempt employees) and those who are not entitled to overtime pay no matter how much they work (exempt employees). Generally, non-exempt employees are paid hourly and entitled to overtime pay at 1.5 times their regular hourly rate. Exempt employees, by contrast, draw a salary that does not change whether they work 30 hours or 50 in a week. Most people are non-exempt employees and thus qualify for overtime pay.
Figuring out which category you fall into is important but often not as obvious as one might expect. That’s because federal law imposes a variety of legal tests to decide whether an employee is exempt from overtime rules. These tests include, for example, the salary-level test, the salary-basis test, and the duties test.
The salary-level test is the simplest. As of this writing, if you make less than $35,568 per year (i.e., $684 per week) then you are entitled to overtime pay.
If you make more than that, then we need to move to the salary-basis test. This test looks at whether the employee receives a guaranteed minimum amount no matter the quality or quantity of their work. For example, whereas a non-exempt employee only gets paid for the time they actually work, exempt employees get paid for a full day even if they leave work early or take a half day off. They can only be docked if they miss the entire day.
If an employee receives a salary of at least $35,568 per year that is not subject to them working 40 or more hours per week, then we continue to the duties test. This test examines the employee’s tasks and duties to see whether the employee falls within one of the exempt employee categories, which include (among others) executive, administrative, professional, highly compensated, and outside sales.
For the executive exemption, the employee must manage the business or a part of the business. They also normally need to direct the work of at least two people and either have the authority to hire, fire, and promote, or significant input into those decisions.
For the administrative exemption, the employee must perform office or non-manual work directly affecting the company’s management and business operations. In addition, the employee must exercise discretion and independent judgment concerning important matters. This last requirement eliminates many junior administrative types from the exemption.
For the professional exemption, the job must require significant education and high-level skills in a field of science or learning. These jobs include doctors, lawyers, engineers, dentists, accountants, architects, and teachers.
For the highly-compensated-employee exemption, the employee must perform office or non-manual work, earn at least $107,432 per year, and perform one of the duties of an exempt executive, administrative, or professional employee.
For the outside-sales exemption, the job must be spent making sales or obtaining orders away from the employer’s place of business. The quintessential example is a door-to-door salesman.
Why should businesses slog through the analytical hoops that we just jumped through? Because not paying overtime gets expensive. Employees can bring claims to the CNMI or federal Department of Labor. If so, the employee can get all of their unpaid overtime from the previous three years plus an equal amount as a penalty. And that can be just the tip of a pricy iceberg if the business has incorrectly withheld overtime from several employees.
Now that we understand the legal terrain, let’s revisit the questions above.
Is Jose, the waiter entitled to overtime for any time he works beyond 40 hours per week? Yes. It doesn’t matter that he receives tips. Nor does it matter if he volunteers to work extra time after clocking out. He must receive 1.5 times his normal hourly rate for any time he works beyond 40 hours per week.
How about Elsa, the restaurant manager? Her job title is a manager. And managers don’t get overtime, right? No, not necessarily. It’s not the job title that matters, it’s the actual job responsibilities. If Elsa is really just the head waitress, then she must receive overtime. But if she supervises at least two people, has the power to hire and fire, and spends most of her time on managerial tasks, then she’s not entitled to overtime.
Finally, what about Anna, the marketing manager? It depends. Does she manage at least two full-time employees? Does she set schedules for some employees? Does she make hiring and firing decisions? Does she get docked pay when she misses time at work? Does she spend the bulk of her time managing people?
Often sorting out whether an employee is exempt from overtime is straightforward. But many cases are closer calls. If you’re unsure, consider speaking with an attorney familiar with employment law.
This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.