Overtime compensation

What does Overtime compensation mean?

Under the Fair Labor Standards Act (FLSA) certain employees must be provided with overtime compensation unless they are exempt. If an employee is not exempt they must receive overtime compensation for all hours worked over 40 hours within a standard work week.

The rate established under the overtime provision of the Fair Labor Standards Act (FLSA) allows the employee to receive a rate not less than time and one-half their regular rate of pay. The FLSA does not, however, limit the number of hours worked. It simply requires payment to the nonexempt employee for all overtime worked.

Additionally, under the act the consecutive hours worked does not have to coincide with the calendar week but may begin on any day and at any hour. The law also allows for different work schedules for different workers.

Benefits of Overtime Compensation

Overtime compensation provides several benefits. The most obvious benefit is increased pay for the worker, especially during busy seasons such as Christmas. Proponents also argue although the business is paying more for labor, they are getting increased productivity as workers work longer hours and produce more products or services. It is also possible that over time pay could help a company make gains against their competition.

Disadvantages of Overtime Compensation

Although forcing workers to work longer hours could increase productivity, it is likely at some point the overtime compensation becomes less of an incentive, and workers, especially if they have no choice about how many hours they must work, can become stressed and less productive. If this occurs the business could suffer as the rate of work decreases and the quality of the service or the product diminishes.

Mandatory overtime also increases the cost of labor. As mentioned above, this extra cost could be offset if the workers remain extremely productive but could be reduced if workers fail to produce enough output.

Who qualifies for overtime compensation?

FLSA divides workers into two categories: exempt or nonexempt. If an employee is nonexempt they are entitle to overtime pay; exempt employees are not. Whether a worker is exempt or nonexempt generally depends on the type of work they perform, how much they are paid, and how they are paid. For example, a salaried employee who receives at least $23,600 per year ($455 per week) and performs exempt duties generally does not receive overtime pay.

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