North Carolina Overtime Law Overview
The basic principles governing overtime pay in North Carolina are found in the federal Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. and in North Carolina’s Wage and Hour Act ("NCWHA"). North Carolina’s overtime provisions are codified in N.C.G.S. § 95-25.6 and its regulations.
The FLSA applies to employers who engage in commerce, which includes any business whose employees engage in interstate commerce or work for a business located in any state. The NCWHA governs employers with at least three employees who are "suffered or permitted" to work in the state of North Carolina. Whichever law applies, both laws provide that covered employees entitled to overtime compensation must generally be paid time and a half for hours worked over 40 in a workweek.
The employer’s coverage of the FLSA is met if: (1) the employer has an annual gross volume of sales of at least $500,000; or (2) the employer’s business "affects commerce . " A business affects commerce if the employees use goods, equipment, facilities, or produce goods that move in interstate commerce, including but not limited to the use of telephones or the internet. Coverage of the NCWHA may be more expansive and includes employers who engage in intrastate commerce and whose sales fall below the FLSA threshold.
The North Carolina wage laws are enforced by the Wage and Hour Bureau of the North Carolina Department of Labor. The FLSA is enforced by the U.S. Department of Labor. Although the principal criteria for coverage are different, the North Carolina Wage and Hour Bureau and the U.S. Department of Labor coordinate their efforts and generally issue opinions consistent with each other. If an employee recovers unpaid wages or overtime under the FLSA, he or she may also be permitted to recover unpaid wages or overtime under the NCWHA as well.
Who is Entitled to Overtime Pay in North Carolina?
Not every employee is entitled to overtime pay in North Carolina and the Fair Labor Standards Act. Both state and federal law exempt certain classes of workers from the overtime pay requirement. Most exempt workers in North Carolina participate in "white-collar" jobs, such as administrators, teachers and executives. For an employee to be truly exempt from North Carolina’s overtime requirement, they cannot perform the primary function of a different classification of workers and cannot earn more than $455 a week.
The most common exemptions apply to computer professionals, doctors and lawyers who charge enough to spend minimal amounts of time completing routine tasks, such as filing tax forms, and vice presidents, directors and other officers of the company. Many professional and administrative workers, like executive secretaries, administrative assistants and other clerical employees make too little to be exempt.
Professional employees, like engineers, architects, artists, accountants and doctors, are also exempt from overtime pay requirements, but only if they meet certain criteria. These employees must be professionals in their field and be certified by a state or national organization. They must also earn at least $455 a week. Supervisors and managers also must pass the test to get exempt status. To qualify, these employees must spend at least 80 percent or more of their time supervising customers and employees. If they spend only a quarter of their time on this task, they must earn at least double the minimum wage.
Aside from these major classifications, exemption rules can be very complicated. Some workers also fall under the categories of commissioned employees, teachers, mechanics, truck drivers, farmworkers, payment collectors, salespeople and drivers.
How to Calculate Overtime Pay
The standard method of calculating overtime pay is fairly simple: it’s the employee’s regular hourly rate multiplied by one and a half times the number of hours that they have worked overtime.
If an employee is normally paid a salary, the calculation is slightly more complicated. Unlike federal law, North Carolina law does not provide a specific mechanism for calculating a salary based employee’s regular hourly rate. That means that the method of computation may need to be agreed upon between the employer and employee. If there is no agreement, courts have applied variations of the following test:
(i) The number of hours a salary was intended to replace.
(ii) The amount of salary.
(iii) The number of regularly scheduled workweeks.
The most common method that employers have used to calculate a salaried employee’s regular hourly rate is to divide the employee’s weekly salary by the number of hours that the employee was expected to work. For example, if an employee earned a salary of $600 per week and worked 45 hours that week, his or her regular hourly rate would be $600 divided by 45 hours, or $13.33/hour. His or her overtime rate would therefore be $20/hour ($13.33 x 1.5). If the employee worked 45 hours every week, for 52 weeks, he or she would earn 10 hours of overtime each week for $200 ($20/hour) for a total of $10,400 (10 x $20/hour x 52 weeks) per year.
Common pitfalls associated with overtime pay and its computation include:
Employees may be surprised that employers are not required to pay overtime pay at time and a half for both overtime hours actually worked in any given workweek and for all hours worked over 40 in any given workweek. For example, in the above scenario, the employee worked 45 hours in one workweek and then 45 hours in the next, for a total of 90 hours. At time and a half, the employee would have earned around $20/hour for the first five hours of overtime (45 hours minus 40 contract hours) and then around $20/hour for the next five hours (a full 45 minus 45 hours of work) even though the employee worked 80 hours total over the two-week period. This is because overtime is a time based compensation system instead of an aggregate hours system. This is one of the reasons that non-exempt salaried employees should keep a record of their time worked each day and every week, as it makes it much easier to dispute a pay discrepancy or clerical error if necessary.
Common Errors and Misconceptions
For one, the employee must actually be an "employee" rather than an "independent contractor." It’s common throughout the country for companies to misclassify workers as "1099-ers" when they should be paying them overtime under the FLSA (the "overtime law"). Even if you think that you have your workers correctly classified, you need to stand up to scrutiny. That is exactly what happened recently in a Supreme Court case talked about here. So, that’s the first misunderstanding: actually having workers that meet the Department of Labor’s definition of "employee."
The next major misunderstanding is this: Does all my company’s work qualify for overtime? The answer is typically "no." Under the FLSA, the entire workweek must qualify for overtime and be compensable at the proper rate. For example, if a person works 35 hours at $10 an hour and is not entitled to overtime, then their pay will stay the same, no matter how many overtime hours they work. If they work 10 hours of overtime then they will still be paid for 35 hours at $10/hour because they are not entitled to overtime. So, most of the time, even though you don’t have to pay overtime, you can still pay your employees for 40 hours, even if they don’t work them.
The third major misunderstanding is the time records that are kept relative to "donning and doffing." Essentially, if an employer has gear that they require employees to wear to properly perform their jobs, this is called "donning and doffing" (to "don" is to put it on, and to "doff" is to take it off). If these activities are not included in the hours worked, then they do not have to be paid as overtime hours. This same rule applies to having to drive to the worksite after their shift. Typically, this is called a "donning and doffing" situation because the employee would have to do the task to reach the jobsite. But, this is not always the case. If you are requiring your employees to return to the office after the shift to pick up the gear, then this must be paid, plus overtime, if applicable. Another scenario where this would not apply is to one where the employer thinks that the pay for the "donning and doffing" particular situation would apply. In cases such as the one discussed here, the employer is responsible for paying some "donning and doffing" time.
These are just a few of the common misunderstandings that employers face while trying to navigate the difficult waters of the FLSA. If you have questions about any of these, or others, please feel free to reach out to a qualified attorney in your area.
How to File for Unpaid Overtime
Employees in North Carolina are urged to maintain accurate sections recording the hours that they work each day. However, if there are deficiencies in these records, such as not recording your hours properly or not keeping them at all, you may still be entitled to overtime pay despite not having a record of your hours worked. When this occurs, it becomes the burden of the employer to prove that the employee did not work the hours claimed. In this situation, it is best to seek assistance from an employment lawyer to determine if you have a claim for unpaid overtime wages.
If you believe that your overtime pay and/or hours worked have not been accurately paid out to you, your first step should be to address the issue with your employer. In many cases, a simple mistake has occurred that can be easily fixed once the information is brought to the employer’s attention. While this is not always the case, it is important that you make your claim known to your employer, as they may be able to correct the issue promptly in accordance with any previous salary agreements that are in place .
If you make a claim and your employer does not address your concerns within a reasonable period of time, or if you fear that your employer may retaliate against you for filing your claim, the next step is to file claim for unpaid overtime with the North Carolina Department of Labor. The North Carolina Department of Labor is responsible for regulating all wage payment complaints filed against employers. It is worth noting that there is a statute of limitations for overtime pay in North Carolina: all claims must be filed within two years of the last violation of overtime pay law.
As there tends to be a significant amount of legal jargon surrounding the laws that dictate overtime pay, it is in your best interests to consult the services of an employment law attorney. A lawyer will help you navigate the overtime pay laws in North Carolina and determine the best course of action for your claim, so that you are able to collect those unpaid wages that you deserve.
Changes to North Carolina Overtime Pay Requirements
Governor McCrory has directed the Governor’s Cabinet to increase wages for certain state employees, and $10.25 an hour is the proposed base wage. The Governor’s Office argues that because of the cuts to government employee salaries over the past three years state employees should receive a raise. While this proposed wage increase may not directly affect other industries, it certainly creates an awareness and encourages employers to assess their wage structure.
In contrast to North Carolina’s proposed actions, the department of Labor has published updates to the federal Fair Labor Standards Act. The updates set a minimum annual salary for executive, administrative, and professional workers at $50,440. These updates are aimed at increasing pay for workers who earn less than $50,440 a year which accounted for 44 percent of salaried workers in 2014. A common misconception is that salaried workers are not entitled to overtime pay. The FLSA allows for an exemption from overtime when an employee: 1) earns more than $23,600 annually or $455 per week; 2) receives a prearranged amount of compensation per week; 3) is paid on a salary basis; and 4) performs exempt job duties under one of the five exemptions. The recent changes to the SALARY BASIS test of the exemption remove the ability of employers to count nondiscretionary bonuses, commissions, and other nondiscretionary payments toward the $455 per week threshold. Instead, the employer will be required to pay an annual salary of $50,440, and the employee is entitled to overtime pay for all hours in excess of 40 worked in a workweek. Employers can also satisfy part of the new minimum salary level requirement by paying a nondiscretionary bonus or incentive payment tied to productivity and revenue provided that the total annual compensation including the bonus amount is at least $50,440. Such payments can satisfy up to 10 percent of the required salary level. Employers’ payroll departments should be aware that the deadline for these changes to the FLSA is December 1, 2016.
Common Questions and Answers
**Frequently Asked Questions about North Carolina Overtime Pay Laws**
How many hours do I have to work to be eligible for overtime pay in North Carolina?
North Carolina overtime laws dictate that you earn overtime pay after you have worked over 40 hours in a single workweek. In general, you are entitled to 1.5 times your regular rate of pay after 40 hours.
Are there any exceptions to North Carolina overtime laws?
Exemptions to North Carolina overtime laws include: Executives, Administrators, Professionals, Outside Salesmen, and Computer Professionals.
My employer banks hours to avoid paying overtime, is this legal?
No, it is not legal for your employer to bank HTO (or comp time) for overtime hours worked. So if you worked 60 hours one week, the employer must either pay you overtime for the extra twenty hours, or pay you in HTO. You can choose whether you prefer to be paid out in HTO or overtime pay. Employers are legally prohibited from making employees take banked HTO.
Will I be paid Houston Time Off (HTO) and at what rate?
HTO is credited at the same rate as overtime. If you work 60 hours in a week, you will receive 20 hours of compensated time off (CTO) . But an employer is also legally required to pay you 20 hours of overtime. As mentioned above, you are free to choose HTO or overtime pay if you prefer. Most people prefer to be paid out in overtime rather than HTO.
Are bonuses considered when calculating overtime pay or the regular rate of pay?
Bonuses must be included when calculating overtime pay and the regular rate of pay. However, bonus hours must be worked in the week for which they are paid.
I have a second job working overtime with another company; will my overtime be calculated based on all my overtime worked, for all companies?
No, overtime hours for each job must be calculated separately. You can’t lump overtime hours for two different jobs together to get time and a half.
I work in a restaurant, does anyone get paid overtime?
According to the North Carolina Department of Labor, no one in a restaurant is legally entitled to overtime pay.
I signed a contract stating that I will not be paid overtime, does that matter?
Signing a contract does not change the law. None of the exemptions to North Carolina overtime laws are waived by signing a contract.