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Beyond the Clock: Answering FAQs About Overtime Laws

Hannah Beppel

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Changing laws regarding exempt and nonexempt employees can greatly affect the way businesses classify and pay employees. Ensuring your pay practices are based on the most up-to-date laws is crucial for compliance.

We sat down with compliance experts Eric Ruden, senior counsel and Tracy Sigmann, senior legal compliance director, to talk through some real-life overtime compliance questions.

Q. What's the difference between exempt and non-exempt employees?

A. Exempt employees are not entitled to overtime pay under the Fair Labor Standards Act (FLSA) due to their job duties and salary levels. These typically include executive, administrative, professional, and certain computer positions. Nonexempt employees, on the other hand, are entitled to receive overtime pay, generally calculated at one- and one-half times their regular rate of pay for any hours worked beyond 40 in a workweek.

Q. How can I know if my employees are misclassified as exempt/non-exempt?

A. To determine if employees are misclassified, you should assess their job responsibilities and salary against the criteria established by the FLSA and your state's labor laws. Key factors to consider include the nature of their work and whether they meet the salary threshold for exempt status. It may also be beneficial to consult with a labor law expert or attorney for a comprehensive review. Keep in mind that even if your employee passes the federal test to be classified as exempt, that doesn't mean they pass the state tests. Be sure to review applicable state and local laws to help ensure the positions also meet any criteria provided by those jurisdictions.

Q. What is the FLSA test to determine if an employee is truly non-exempt?

A. To determine if an employee is truly exempt or non-exempt, you can apply the following tests based on the criteria established by the FLSA:

• Duties test: Evaluate the employee's primary job duties and responsibilities. Exempt employees typically fall into specific categories, such as executive, administrative, professional, outside sales or certain computer-related positions. Each category has specific criteria regarding the nature of the work performed.
• Salary basis test: Ensure the employee earns a salary that meets or exceeds the predetermined threshold set by the FLSA. As of 2025, this threshold is $684 per week for most exempt employees. This means the employee must receive a guaranteed amount of pay regardless of hours worked.
• Highly compensated employees: Employees performing non-manual or office work who are paid an annual income of $107,432 or more are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.
• Outside sales exemption: If the employee's primary duties are making sales or obtaining orders or contracts for services and must be regularly engaged away from the employer's place of business, they are exempt from the FLSA.

Each of these tests must be carefully assessed to establish whether an employee is properly classified as exempt or non-exempt. If there is any uncertainty, consulting with a labor law expert can provide clarity and help ensure compliance with applicable laws.

Q. What is the cost to employers if an employee is misclassified?

A. Misclassification can lead to significant costs for employers, including back pay for unpaid overtime wages, potential fines, legal fees and interest on unpaid wages. The total cost can escalate dramatically, especially for employees who have been misclassified over long periods. Additional costs can be reputational and losing employees' trust.

Q. Should shift differentials, commissions and signing bonuses be included when calculating regular rate of pay (RROP)?

A. Yes, shift differentials, commissions and signing bonuses need to be factored into the calculation of the regular rate of pay (RROP), depending on the specific circumstances and applicable state and local laws.

Q. For remote workers, do the overtime laws of the state where they live or the state where the company is headquartered apply?

A. The overtime laws of the state where the employee is performing services for the employer typically apply. This means that employers must follow the labor laws of that state regarding overtime pay, minimum wage, and other employment standards.

Q. When paying a shift differential or location premium, is overtime pay still required on top of these?

A. Yes, shift differentials and location premiums are considered part of the regular rate of pay (RROP) and must be included when calculating overtime pay. Therefore, overtime calculations should incorporate these additional compensation amounts.

Q. How should nonexempt employees traveling for work be paid? Is all travel time (e.g., driving, flying, taking the train) compensated?

A. Travel time must be compensated if it occurs during regular working hours or if the nonexempt employee is traveling as part of their job duties. For example, traveling to a remote job site during work hours or taking a flight for business should be paid. However, time spent commuting from home to the primary workplace is generally not compensable.

Q. If the pay frequency is semi-monthly, is overtime still based on a 40-hour workweek?

A. Yes, overtime calculations are typically based on a 40-hour workweek, even if the pay frequency is semi-monthly. This means that employees are entitled to overtime pay for any hours worked over 40 in a single workweek, regardless of how the pay period is structured. It's important for employers to be familiar with state pay frequency and pay timing laws, especially for their nonexempt employees.

Q. How does salaried non-exempt differ from hourly non-exempt?

A. Salaried non-exempt employees receive a fixed salary but are still entitled to overtime pay for hours worked beyond 40 in a workweek. Unlike hourly non-exempt employees, their pay does not fluctuate based on hours worked. However, all overtime regulations still apply, and employers must ensure compliance when calculating their overtime pay based on their salary.

The wrap-up

This article draws on a recent webinar where Ruden and Sigmann shared their insights on compliance considerations regarding overtime laws. During the live webcast, attendees placed their overtime and employee classification questions in the Q&A for Ruden and Sigmann to review. Watch it on demand now. Beyond the clock: Navigating overtime requirements.

The article Overtime Compliance: Key Considerations for Employers provides additional details on this topic. Also, be sure to replay the two related webinars in the employment law series.