The Sacramento Business Journal recently reported that lawsuits under the Federal Labor Standards Act (FLSA) have risen 33% over the past three years. With that in mind, it seems like a good time to discuss when contractors must be paid overtime.

First, let's clarify what we mean by contractors. We are not talking about 1099 Independent Contractors.  We are talking about workers who are placed on a contract basis at a client company and who are W-2 employees of a third party.  

The FLSA requires that most W-2 employees be paid at a rate of 1.5 times their regular pay rate for any hours worked over 40 in a work week. Some states have more stringent requirements. For instance, workers in California must be paid overtime for any hours worked over eight in a day.

The FLSA does allow certain employees to be classified as exempt from overtime.  To be exempt, employees must also fall into one of the following classifications and be paid at least $455 a week on a salary (not hourly) basis:

  • Executive
  • Administrative
  • Learned Professional

Keep in mind, however, that just calling someone an executive, for example, does not automatically make them exempt. They must meet certain requirements to be considered exempt under one of these classifications. Please see the exempt requirements provided on the Department of Labor Web site.

The rules are a little different for professionals working in Computer-Related and Outside Sales occupations. Employees meeting the requirements for the Computer-Related exemption can be paid at an hourly rate if they are paid at least $27.63 per hour ($38.89 per hour in California).  Additionally, the salary requriements do not apply to those under the Outside Sales exemption.

If you are placing contractors and run your own back-office, you are responsible with properly classifying contractors as exempt or non-exempt and paying overtime when required. But even if you are utilizing a contract staffing back-office that handles those responsibilities, it is important that you are aware of the requirements of the FLSA since your clients often look to you as an employment expert.

This article is for informational purposes only and should not be considered legal advice.

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