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Overtime is the amount of time someone works beyond normal working hours. Normal hours may be determined in several ways:
Most nations have overtime labor laws designed to dissuade or prevent employers from forcing their employees to work excessively long hours. These laws may take into account other considerations than the humanitarian, such as preserving the health of workers so that they may continue to be productive, or increasing the overall level of employment in the economy. One common approach to regulating overtime is to require employers to pay workers at a higher hourly rate for overtime work. Companies may choose to pay workers higher overtime pay even if not obliged to do so by law, particularly if they believe that they face a backward bending supply curve of labour.
Overtime pay rates can cause workers to work longer hours than they would at a flat hourly rate. Overtime laws, attitudes toward overtime and hours of work vary greatly from country to country and between different economic sectors.
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Time off in lieu; compensatory time; or comp time refers to a type of work schedule arrangement that allows (or requires) workers to take time off instead of, or in addition to, receiving overtime pay. A worker may receive overtime pay plus equal time off for each hour worked on certain agreed days, such as bank holidays.
In the United States, such arrangements are currently legal in the public sector but not in the private sector.[1]
For example, non-exempt workers must receive at least one and one half times their normal hourly wage for every hour worked beyond 40 hours in a work week. For example, workers who clock 48 hours in one week would receive the pay equivalent to 52 hours of work (40 hours + 8 hours at 1.5 times the normal hourly wage). That would permit the worker in this example to forgo the 12 hours of overtime pay and instead take 12 paid hours off at some future date.
In Australia, such arrangements both in the private and public sector are common.
In some cases, particularly when employees are represented by a labor union, overtime may be paid at a higher rate than 1.5 times the hourly pay. In some factories, for example, if workers are required to work on a Sunday, they may be paid twice their regular rate i.e.(double time).
In the United States, the Fair Labor Standards Act of 1937 applies to employees in industries engaged in, or producing goods for, interstate commerce. The FLSA establishes a standard work week of 40 hours for certain kinds of workers, and mandates payment for overtime hours to those workers of one and one-half times the workers' normal rate of pay for any time worked above 40 hours. The law creates two broad categories of employees, those who are "exempt" from the regulation and those who are "non-exempt". Under the law, employers are not required to pay exempt employees overtime but must do so for non-exempt employees. Independent contractors are not considered employees and are not protected by the FLSA. Several factors determine whether a worker is an employee, who might be entitled to overtime compensation, or an independent contractor, who would not be so entitled. The employment agreement stating that a party is an independent contractor does not make it necessarily so. The nature of a job determines whether an employee is entitled to overtime pay, not employment status or the field of work.[2]
Classes of workers who are exempt from the regulation include certain types of administrative, professional, and executive employees. To qualify as an administrative, professional, or executive employee and therefore not be entitled to overtime, three tests must be passed based on salary basis, duties, and salary level. The tests vary between administrative, professional, and executive employees based on their different duties and salary levels. There are many other classes of workers who may be exempt including outside salespeople, certain agricultural employees, certain live-in employees, and certain transportation employees. Employees can neither waive their FLSA protections nor abridge them by contract.
An employer may not retaliate[3] against an employee for filing a complaint or instituting a proceeding based on the FLSA. An employer that does retaliate would be liable under the Fair Labor Standards Act Section 216(b) for equitable relief including reinstatement, promotion, payment of lost wages, and payment of liquidated damages. Acts of retaliation include terminating employment, disrupting the workplace, threats, acts of physical violence, and constructive discharge.
Out of approximately 120 million American workers, nearly 50 million are exempt from overtime laws (U.S Department of Labor, Wage and Hour Division, 1998). In 2004, the United States was 7th out of 24 OECD countries in terms of annual working hours per worker. (See Working time for a complete listing.)
On August 23, 2004, President George W. Bush and the Department of Labor proposed changes to regulations governing implementation of the law. According to one study, the changes would have had significant impact on the number of workers covered by overtime laws and have exempted several million additional workers.[4] The Bush administration maintained that the practical impact on working Americans would be minimal and that the changes would help clarify an outdated regulation. In particular, the new rules would have allowed more companies to offer flextime to their workers in lieu of overtime. In September 2004, both chambers of Congress voted to block the Labor Department from putting these regulatory changes into effect.
The state of California's overtime laws involve overlapping statutes, regulations, and precedents that govern the compensation of employees in California. While the governing federal law is the Fair Labor Standards Act (29 USC 201-219), California overtime law is codified in provisions of the California Labor Code and in Wage orders of the Industrial Welfare Commission[5] Because there are two sources of applicable law (federal and state), a California employer must comply with both.
In California, based on California Labor Code 1171, only an employment relationship is required for overtime rules to apply. Under the California Industrial Welfare Commission Wage Orders, an "employer" is "any person ... who directly or indirectly, or through an agent or any other person, employs or exercises control over wages, hours, or working conditions of any person." Under the California Labor Code, an "employee" is "[any] person, including aliens and minors, rendering actual service in any business for an employer, whether gratuitously or for wages or pay, whether the wages or pay are measured by the standard of time, piece, task, commission, or other method of calculation, and whether the service is rendered on a commission, concessionaire, or other basis." Independent contractors are not employees covered by overtime laws, so it is important to determine if a worker is an independent contractor or an employee.
California overtime laws differ from federal overtime laws in many respects. Foremost, pursuant to California Labor Code Section 510, non-exempt employees must be compensated at one and a half times the regular rate of pay for all hours worked in excess of eight hours in a workday, 40 hours in a workweek and the first eight hours of a seventh consecutive workday. Employees in California are entitled to double-time for working more than twelve hour workdays or more than eight hours on the seventh consecutive workday of a single workweek. Under federal law there are only 40 hour weekly overtime limits. This eight hour overtime limit in California frequently gives rise to wage-and-hour litigation for violations of state, but not federal, labor laws.
For example, "comp time" schemes, where employers tell employees that since they worked 10 hours on Monday they can work 6 hours on Tuesday, are illegal because even though the employees are not working more than 40 hours for the purposes of overtime compensation under federal law, they are working more than 8 hours for purposes of California overtime law and rounding the 6 and 10 hour workdays to two 8 hour workdays would cheat the employee out of two hours of overtime pay.
Perhaps the biggest difference between California and federal overtime law relates to the administrative exemption's "primarily engaged" in duties that meet the test for the exemption requirement, such as duties that involve exercising independent discretion and judgment as set forth in the controversial Order No. 4. Whereas under the Fair Labor Standards Act "primarily engaged" does not necessarily mean at least half, under California wage-and-hour laws, less than half of exempt duties automatically eliminates the overtime exemption.
Directives issued by the European Union must be incorporated into law by member states.
Directives 93/104/EC (1993), 2000/34/EC (2000), which limited working hours, were consolidated into 2003/88/EC (2003). Employers and employees could agree to opt out, but this exception is to be tightened up, after the EU reported evidence that the opt-out was being abused in the UK, in a new proposal for a directive expected to be adopted in early 2006, and adopted into the law of member states within 2 years.
The directives require:
The directives apply to:
Exemptions:
The conditions attached to the worker's individual consent are somewhat modified by the proposed new directive: member states may allow workers to opt out from the limitation of hours worked so long as this is expressly allowed under a collective agreement (e.g., with a trade union), and if the individual worker consents. The individual's consent is subject to conditions: