The business news media has been awash with stories about overtime pay ever since the previous administration introduced new rules to make more workers eligible for the extra pay. As such, companies have been implementing policy changes to make sure every employee is properly compensated.
In light of all the buzz surrounding overtime rules and pay, we thought it might be interesting to take a look at the history of time-and-a-half in the U.S. Before we do though, a brief reminder of how it actually works is in order.
Federal law dictates that the standard work week in the U.S. is 40 hours. All American workers who are not exempt under the Fair Labor Standards Act (FLSA) must be paid one-and-a-half times their normal rate for every hour worked in excess of 40 during a given work week. An hourly worker making $10 per hour would receive an extra $45 for three hours of overtime.
The FLSA and Overtime Pay
Overtime pay did not exist in the U.S. prior to the adoption of the FLSA in 1938. The legislation was one of the most comprehensive wage and hours bills ever passed by Congress. It was so comprehensive that most of its provisions have been left intact – at least in principle – for the last 80+ years.
The FLSA created standards by which workers classified as genuinely employed were to be compensated for their time. The standards did not, and still do not, apply to independent contractors and volunteer workers. Such workers are not considered genuine employees under the law's provisions. Where time-and-a-half pay is concerned, the law is contingent upon an established hourly wage by which employees are compensated.
One of the more interesting provisions relating to time-and-a-half pay continues to cause consternation for employees and employers alike. That provision stipulates that employers are not required to offer overtime pay for tasks not directly related to an employee’s day-to-day activities. For example, time spent traveling to and from the job site does not have to be compensated, nor do certain kinds of activities employees undertake to prepare for work on a given day.
Another interesting provision deals with hourly wages, overtime pay, and tips. You should be familiar with this provision if you know how tipped workers are compensated. For example, restaurant servers are typically paid a wage lower than their state's minimum wage, in exchange for extra tip income. If a server earns more than $30 per month in tips, minimum wage and overtime rules do not apply.
A Penalty Rather Than a Bonus
Our modern culture views time-and-a-half pay as a bonus to workers for putting in extra time. In fact, workers themselves view the extra pay as such. It is not uncommon for workers to compete for limited overtime specifically because they want the extra money. However, that was never the intent.
At the time the FLSA was adopted, the U.S. was still struggling to recover from the Great Depression. The government wanted to encourage companies to hire new employees rather than generating more productivity from current staff by forcing overtime hours. They came up with time-and-a-half as a penalty for overtime. The idea was to dissuade them from using overtime and, instead, hire new workers to increase productivity.
Now that you know a little bit more about the history of time-and-a-half pay, are you positive your company is in compliance? Better yet, is your company struggling with payroll processing and FLSA compliance? If so, contact BenefitMall right away. We can help by way of a customized payroll solution that perfectly suits the needs of your business.