The Fair Labor Standards Act (“FLSA”) requires that virtually all employees be paid at least the federal minimum wage for hours worked, plus overtime (at time and a half the employee’s base pay) for any hours over 40 in any given work week. It is critical for small businesses to know which employees are considered “exempt” from the overtime rules and which are “non-exempt,” meaning they must be paid overtime.
Many small businesses and non-profits assume that if they pay an employee a salary, then they don’t have to worry about the overtime rules. After all, paying overtime is expensive. However, the penalties for misclassifying employees and refusing to pay overtime can be steep. And while happy employees generally don’t complain, disgruntled employees (and former employees) will suddenly demand their unpaid overtime no matter what “understanding” you thought you all had.
Before adopting a policy of simply not paying overtime (or making everyone a salaried employee), small businesses and non-profits should ask three questions: