Most non-exempt employees in the US earn overtime pay (at 1.5x their regular rate of pay) after 40 hours in a workweek. So, it’s easy to think that if that employee works 46 hours, 6 of those hours would count towards overtime pay. But what happens when some of those hours are vacation or sick hours? Will that affect the employee’s overtime calculations? Yes.
The Basics of Paying Employees
The federal government has its rules about minimum wage and overtime to protect employees’ right to fair wages. Ultimately, non-exempt employees must earn at least minimum wage for every hour they work and must earn overtime wages when they work over 40 hours in a workweek. Many states have their own minimum wage laws and overtime rules that employers must follow, such as daily and weekly overtime, rather than weekly overtime.
Overall, the law says that an employer must pay employees for all hours that they work and must adhere to the Fair Labor Standards Act (FLSA) or state requirements. If a non-exempt employee isn’t working, an employer does not have to pay that employee.
When Do Employees Earn Overtime?
Salaried employees are usually exempt from overtime because they earn the same pay each paycheck, no matter how many hours they work. However, this differs for non-exempt hourly employees. Employers must pay non-exempt employees overtime when they work over 40 hours in a workweek. As mentioned earlier, more states have their own rules too. For example, those in California, Nevada, Colorado, and Alaska all have daily overtime requirements. If you have questions about your state’s laws, you can check with your local HR expert or local labor board.
Under current law, non-exempt employees only earn overtime for any hours worked. Employers do not have to count paid holidays, PTO, vacation, sick leave, or any other leave towards overtime calculations. An employer may choose to include paid time off in overtime calculations if desired, but it’s not necessary.
What are “Hours Worked”?
To put it simply, “hours worked” are hours in which an employee is permitted to perform work. Any hours that an employee works will count towards their regular pay and overtime calculations.
However, there are a few exceptions to this rule. Meaning, that an employee doesn’t have to actively work at all times to earn compensation. According to the Fair Labor Standards Act (FLSA), employees may earn compensation during these circumstances as well:
- Waiting time: This depends on certain circumstances, but an employee may earn pay if they’re told to wait while they’re on the clock. For example, if a secretary was sitting at their desk waiting for direction, it counts as compensatory waiting time.
- On-call time : Time is compensated when employees spend their time on-call while on work premises count as hours worked.
- Rest and meal periods: Employees who have breaks that last 20 minutes or less should earn compensation. If an employee has a rest period longer than 20 minutes, the employer does not have to pay the employee because they are not considered hours worked.
- Lectures, meetings, and training programs: Any meetings, lectures, or programs under these specific circumstances.
- Travel time: Any employee who travels for work purposes during these instances should earn pay for their time. This is considered hours worked.
Ultimately, if an employee is considered “on the clock”, those hours will count towards their regular and overtime pay.
How Overtime Works
When an employee has vacation or sick hours on their timesheet, it won’t affect their overtime accumulation.
For example, let’s say an employee worked Monday through Friday in a state that follows federal overtime requirements (1.5x normal rate of pay after 40 hours in a workweek):
- Monday- Worked 8 hours
- Tuesday- Worked 10 hours
- Wednesday- Worked 8 hours
- Thursday- Worked 8 hours
- Friday- Used 8 hours of vacation time
- Saturday- No hours worked
- Sunday- No hours worked
In total, the employee has 42 hours on their timesheet, however, the employee doesn’t have 2 hours of overtime in this situation. Here’s why:
The employee worked a total of 34 hours at their normal pay Monday through Thursday and used 8 hours of paid time off on Friday. Remember, employees don’t earn overtime based on hours that they aren’t actually working; so, the vacation time on Friday counts as normal pay. Therefore, the employee would see 42 hours of regularly paid time on their paycheck.
Unless an employer creates a special policy, vacation, sick, or any other form of paid time off does not count towards overtime calculations. The time employees spend working is the only time that will count towards overtime.
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