Crime And A Half

Over And Above

The rules regarding overtime and exemption from overtime are complicated. Basically, you have to pay overtime whenever an employee works more than 40 hours in one week. Even if you didn't authorize the extra time, you have to pay overtime. To figure the hourly wage to compute overtime, include all payment for employment, including regular bonuses, commissions, piece rates and shift differentials. Divide that by 40 hours, then multiply by 1.5 to compute the rate of pay for any hours more than 40.

You don't have to pay overtime for employees classified as exempt because of the nature of their jobs, such as professionals, outside sales reps, computer specialists, administrators and managers. But beware of assuming that someone paid on a salary basis is automatically exempt. Exempt employees exercise independent judgment or creativity. Exempt employees need not be paid when they're gone for a full day. However, if you dock pay for a partial-day absence, such as a doctor's appointment, you're treating the employee as nonexempt and could be held liable for any failure to pay overtime. The only case when it's OK to dock an exempt employee's pay for a partial-day absence is when you have a sick- or personal-leave policy. In that case, you can reduce the allotted sick days by the half-day. But if the employee has used up the allotted sick days and takes another half-day off work, you can't deduct that.

Note that state wage and hour laws-especially in California-may set different standards. You're required to abide by whichever is more favorable to the employee. Complying with wage and hour laws can be difficult. Remember that their goal is to make sure American workers are paid fairly for the time they work-and that's a worthy goal.

For more information on Fair Labor Standards Act compliance-including child-labor laws-visit www.dol.gov.
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This article was originally published in the February 2001 print edition of Entrepreneur with the headline: Crime And A Half.

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