The Essential Guide to Overtime for Salaried Employees in North Carolina
The Basics of North Carolina Overtime
In North Carolina, state law requires employers to pay all "non-exempt" employees who work more than 40 hours in a workweek overtime. Additionally, non-exempt employees in North Carolina must receive overtime for hours worked on certain weekends and holidays. Many businesses in North Carolina are "exempt". This means that the employee is exempt from overtime pay protections required by the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., 29 C.F.R. §§ 541.1 et seq . The state law requirements overlap Federal law requirements, but it is important to look at both laws to understand what an employer’s duties are toward their employees.
Locating the North Carolina minimum wage and overtime law is difficult. However, the state’s Department of Labor does publish the Minimum Wage and Overtime Manual for Public Sector Employers and Businesses that have 3 or more employees. This easily accessible document summarizes the North Carolina law on wage and overtime requirements.
Who is a Salaried Employee?
There is more to being classified as an exempt (red) job than the fact that you get a salary and a paycheck. Here’s the basic rundown of how to qualify:
1. The employee must be paid an annualized salary of at least $455 per week. Not $450 per week, not $452 per week, not $453 per week. $455.
2. The salary cannot be subject to deductions based on how many hours the employee works. Such as:
a. Charging the sick time taken by the employee against their paycheck;
b. Paying the employee a reduced salary if he has not worked 40 hours in the workweek;
c. Paying the employee a reduced rate if he is working on holidays; or
d. Paying the employee only for the actual hours worked.
3. The primary duties of the employee must fall within the categories of an exempt job under federal and North Carolina law. Generally, the person needs to be in a management position, handling sales, managing an important part of the business or having a high degree of "independence" from the company.
Exempt and Non-exempt Employees
Exempt is a specific legal designation under the Fair Labor Standards Act the United States Department of Labor (DOL) has conferred on numerous categories of workers. The FLSA contains not only the minimum wage provisions most people associate with the Act but also overtime provisions that govern the payment of overtime to eligible workers. The FLSA exempts certain categories of workers from its overtime provisions, thereby requiring that no extra pay be made for hours worked in excess of 40 hours in a workweek. Some workers who do not receive overtime pay do so because they are ineligible for it due to their job duties and the types of work they engage in. Categorizing workers as exempt is a complex and often confusing determination.
The FLSA identifies the specific categories of workers exempt from overtime. In addition to broadcasting and some other limited professions, the exemption categories are as follows: 1) executive employees, 2) administrative employees, 3) professional employees, 4) computer and IT profession employees, and 5) outside sales employees. These professionals, unlike most hourly paid workers, do not need to be paid overtime for hours worked over 40 per workweek. It is important to note that use of the term "exempt" in the FLSA context is specific to overtime requirements. It generally bears no relationship to whether a position is "salaried" or "hourly." Being "salaried" is not the determinative factor in whether that employee should be classified as exempt and whether the employer is free from overtime obligations to that employee.
Generally, to be deemed "exempt" under the FLSA, the worker must meet the following requirements: As an example, a manager working at a company receiving 50% or more of its gross revenue from retail sales who earns an annual salary of at least $455.00 per week is "exempt" and would not be entitled to be paid overtime. However, a supervisor making an annual salary of $1,000.00 per week who determines which product on the store shelves get stocked first and how the employees will achieve their daily goal of stocking the shelves will, like the retail clerk, be entitled to overtime if he or she works more than 40 hours per week.
Salaried Employees and Overtime Calculations
Calculating overtime pay for a salaried employee is fairly easy in North Carolina. Oftentimes, I think overtime calculations become even more complicated because employers seek out "payroll companies" or outside vendors to calculate the overtime for them. Though I am a big proponent of technology and modernization of payroll, I think there is a great danger in relying entirely on such software products to do the calculations for your business. Software still requires reasonable guidance from a human to identify issues and ensure the calculations are correct. So familiarize yourself with a couple methods to calculate the overtime due to your employees.
The basic formula for calculating the overtime due to an employee is to divide the weekly salary by 40 hours. This will be the regular rate of pay. Once you have a regular rate of pay, you can calculate the overtime due and other amounts. Here is an example: Let’s assume Employee A earned $900 in one week and his salary always covers 45 hours. The regularly hourly rate of Employee A is $900 / 40 = $22.50. To determine the overtime due, multiply the regular rate of pay by 1.5. In this example, 22.50 x 1.5 = $33.75. So if Employee A only worked 40 hours, he would earn $900. If Employee A worked 45 hours, his pay would be $900 base plus $168.75 overtime [33.75 x 5 = 168.75]. If Employee A had worked 55 hours, his pay would be $900 plus $375 ($33.75 x 15 hours = 506.25).
If an employer calculates the overtime incorrectly, they may be liable for unpaid overtime. Note that rounding hours is not permitted under the new FLSA regulations. As such, if Employee A worked 42 hours (not 42.25 or 42.5, but exactly 42 hours), he gets paid for 42 hours at his regular rate and 2 hours at his overtime rate.
Are the overtime pay calculations the same for an employee who works more than 40 hours in a single day? No. In such a circumstance, the employer should calculate the regular rate of pay as follows: $900 / 45 = $20.00; then 20.00 x 2 hours (at OT rate) = $40.00 plus the normal $900 for the week. However, make sure you have a clearly stated policy that sets your work week as starting at 12:00 a.m. on Monday and ending at 11:59 p.m. on Friday [or some other time period] to ensure that you receive all 40 hours.
If the employer only looks at the total number of hours worked, but uses the daily worker’s unpaid meal periods to make deductions from the hours worked, the employer will incur liability for unpaid overtime because employees must receive full pay for any periods that are automatically deducted from their time records (i.e., auto meal deduction). Additionally, the employer must include all the hours worked over 40 in a work week, regardless of whether the work occurs within a single duty period (i.e., shift). If any work occurs during a particular work week, all the time worked in a single week must be aggregated for overtime calculations.
An employer cannot round an employee’s time for purposes of determining daily hours worked. But an employer can round hours worked for purposes of determining the total number of hours worked in a work week. For example, the employer can assign a uniform 10-minute break regardless of the actual time that is taken. Further, the employer can round hours worked within a single day (i.e. shift) to the nearest quarter of an hour. For example, an employer can require employees clock in every day such that they work 48 hours. Then, the employer can deduct 10 minutes and add 10 minutes as per times shown above. The employer can make other rounding rules as long as the rules do not "overwhelm" the hours actually worked. The idea here is that an employer cannot game the system to collect more hours worked than the employee actually worked. Employers may get burned if they have a defined and uniform policy that does not generate additional time worked.
Overtime Myths
One of the most common misconceptions that employers have is that they can simply pay a salary to avoid the hazards of overtime. Not only is this wrong, but it also has expensive consequences if the determination of whether or not someone receives overtime is based on how the employee is treated for purposes of overtime. For example, I had an employer recently tell me that they paid an employee hourly for the first five years of employment, and then switched to salary. The company sold out at that point. During the sale, no one informed the buyer that the compensation methodology had changed. In addition, none of the employees communicated this change to the buyer of the business, even though it was well known amongst other employees. Guess who is now on the hook for overtime after having been contacted by the employee and achieving a large judgment in his favor. That’s right, the buyer of the business, who had nothing to do with the decision to change the method of compensation from hourly to salary.
Another common misconception that employers have is that they cannot pay an independent contractor overtime, so long as the worker is appropriately classified as an independent contractor. If an independent contractor works more than 40 hours in a workweek, however, and she doesn’t meet the exemption criteria (in the Federal law, you have to perform exempt job duties; in state overtime law, you have to meet both the federal duties test and be paid the required minimum amount), the independent contractor should be paid overtime. This is true even though the independent contractor works for more than 2 different businesses. The actual work week is measured across all companies that the person works for, any day of the week . Even if the worker works for 10 different companies, gets 10 separate checks for work under 40 hours each week, the time spent doing work for all 10 companies is aggregated when determining if she worked more than 40 hours. Shocking, but true.
Some employers seem to think they are exempt from overtime restrictions because their business is seasonal. The Fair Labor Standards Act makes no distinction between full-time and part-time workforces. Moreover, while some seasonal business do qualify for governing regulations, the number of employees that seasonal business can hire is not unlimited. The public policy behind overtime laws is that workers should be entitled to be paid extra for long hours worked, to prevent exploitation by employers. While there are public policy concerns associated with seasonal workforces, the objective of the public policy on overtime is not to punish seasonal employers, but to prevent the abuse of workers through long hours one week and no work the next or the next. Stated differently, the regulations preventing exploitations apply equally to seasonal and full-time employers, and to part-time and full-time workers.
Many employers mistakenly think that the sole benefit to overtime is that they are paid times 1.5 for hours worked over 40. In fact, for non-exempt employees, the cost of overtime can be two or three times that for non-exempt employees, including the loss of artificial cost limits on staffing, possible overtime litigation in state and federal court, and liability for attorneys’ fees in the future. In addition, overtime litigation in state and federal courts is becoming more common, so that business are now faced with litigation and the potential to pay substantial attorneys’ fees for defending their decisions.
Rights and Protections Under the Law
The legal rights and protections which apply to salaried workers in North Carolina are defined by both federal and state law. North Carolina employees, including those who are on salary, are protected from discrimination on the basis of race, sex, disability, religion, color, age, and national origin. Should a North Carolina employee experience any form of discrimination, he/she may pursue a claim under North Carolina law.
While certain provisions of the Fair Labor Standards Act (FLSA) apply to salaried employees, the Office of the North Carolina Commissioner of Labor does not enforce federal wage and hour laws.
In accordance with the FLSA, an employee is considered exempt from payment of overtime wages if he/she is among the following positions:
- Executive
- Administrative
- Professional
- Computer
- Outside sales
As a general rule, these exempt positions are not entitled to time-and-a-half for overtime hours worked in excess of forty in one week. The amount of salary paid to an employee has no bearing on whether or not part of his/her job duties entail executive, administrative, professional, computer, or outside sales duties. In short, being on a salary alone does not exempt employees from overtime pay in the State of North Carolina.
For an employee to be considered exempt under the FLSA, he/she must receive a guaranteed salary that is double the federal minimum wage, while performing any one of the aforementioned four job duties. Salaried employees who do not meet the specific job duty qualifications are typically entitled to overtime pay in North Carolina. The four job duties may appear deceptively simple but the explanation they require typically runs several pages long in the law, leaving many employees confused about their overtime pay rights.
Recent Developments
The most notable change in the last few months with respect to overtime rules for salaried employees in North Carolina is the change in the federal regulations and their implementation. President Obama plugged the proposed update of the Fair Labor Standards Act when he was campaigning for President and once elected ordered the Department of Labor to update the rules. The law was changed and was ready to be enacted in late 2016.
Although Federal District Courts in Texas and Pennsylvania issued decisions blocking implementation of the change , it is still unclear whether it will be implemented at all.
The update would have more than doubled the salary an employer would need to meet before they would be exempt from paying overtime under the federal law. This could have created a lot of new overtime claims as employers were forced to pay thousands of additional employees overtime that previously were never entitled to it.
Another notable change for most employers is the September 24, 2016 effective date of the North Carolina Wage and Hour Act ( NCWHA) Rules Update. This update is a codification of existing case law with respect to the NCWHA. It includes rules on recordkeeping, overtime and misclassification.
Coupled with the recent North Carolina Court of Appeals decision in Grissom v. Hous. Auth. Of City of Winston-Salem, the NCWHA is now substantially more difficult for employees to prove and for employers to defend.