FLSA Overtime Rules for Trade Businesses

Why this matters

The Fair Labor Standards Act (FLSA) governs overtime pay for non-exempt employees. The classic violation in trade businesses: a contractor pays a technician a flat weekly "salary" intended to cover 40 hours, but the technician routinely works 50, with no separate overtime calculation. Under FLSA, this employee is owed overtime for the hours over 40, calculated based on their regular rate. The Department of Labor recovers tens of millions per year from contractors who got this wrong. The fines plus back wages plus liquidated damages can sink a small business. Understanding the actual rules - and the limited exemptions - is essential. The contractor who pays per FLSA pays for compliance once; the contractor who doesn't may pay 3 to 5 times that in back wages, penalties, and legal fees.

What FLSA requires

FLSA (29 USC 201 et seq., 29 CFR 778):

• All non-exempt employees must be paid overtime (1.5 x regular rate) for hours over 40 in a workweek
• "Workweek" is a 7-consecutive-day period
• Overtime is per workweek, not per pay period
• Regular rate includes most non-discretionary pay (commissions, bonuses, shift differentials)

The default: every employee is non-exempt unless specifically exempt. Burden is on the employer to prove exemption.

Who is exempt

The major FLSA exemptions:

Executive exemption

• Primarily managing the business or a department
• Directing the work of 2+ employees
• Authority to hire, fire, or influence those decisions
• Salary basis: paid on a salary at or above the federal weekly minimum (check the current figure; it is re-set by rulemaking, not by inflation)

A foreman who supervises 2 to 3 employees AND directs their work might qualify. A technician who happens to "lead" a 2-person team while doing the same work as them does not qualify.

Administrative exemption

• Office work directly related to management or business operations
• Discretion and independent judgment on significant matters
• Salary basis: paid on a salary at or above the federal weekly minimum in force that year

A bookkeeper, office manager, or dispatcher with significant decision authority might qualify. A receptionist or estimator following established procedures does not qualify.

Professional exemption

• Work requiring advanced knowledge (typically requiring a bachelor's degree)
• Engineering, accounting, law, medicine

Not common in trade businesses.

Outside sales exemption

• Primary duty is making sales
• Regularly works away from the employer's place of business

A sales rep who travels to customers' homes / businesses to sell could qualify; an inside salesperson who works only at the office typically does not.

Why most trade workers are non-exempt

A standard service technician:

• Performs labor-trade work
• No supervision authority
• Limited discretion (work is per established procedures)
• Often hourly or pieceworker

This worker is non-exempt. They must receive overtime for hours over 40 per workweek.

What "regular rate" actually means

The overtime rate is 1.5 x "regular rate". Regular rate is NOT necessarily the hourly rate the employee thinks they're being paid.

Regular rate includes:

• Hourly wage
• Piece-rate earnings (production-based pay)
• Commissions (non-discretionary)
• Non-discretionary bonuses (performance bonuses)
• Shift differentials

Regular rate excludes:

• Discretionary bonuses (truly at employer's discretion)
• Reimbursements (for expenses)
• Holiday gifts (not tied to work)
• Premium pay for working beyond standard hours (in some cases)
• Profit sharing (typically)

For an hourly employee who also earns a monthly performance bonus:

• Regular rate = (all straight-time earnings for the week, including the bonus allocated to that week) divided by hours actually worked
• Overtime rate = 1.5 x that regular rate, not 1.5 x the base hourly rate

The bonus increases the regular rate for overtime calculation. Many contractors miss this.

Common overtime violations in trade businesses

"Salary" for non-exempt workers

A technician paid a flat weekly salary intended to cover 40 hours but actually works 50.

• Under FLSA, the salary covers only 40 hours
• 10 hours of overtime at 1.5x the regular rate = 15 additional hours of pay
• Effective hourly rate = weekly salary divided by 40
• Overtime owed = effective rate x 1.5 x 10 extra hours
• Back wages owed: per workweek
• Liquidated damages: up to 2x the back wages
• Total per workweek of violation: up to 3x the unpaid overtime + legal fees

For a contractor who paid this way for 2 years (104 workweeks), total exposure is the per-week amount multiplied across two years, plus legal fees. Multiplied across multiple affected employees, the back-wages liability commonly reaches a six-figure sum.

Compensatory time instead of overtime

Some contractors offer "comp time" instead of overtime pay. In the private sector, this is illegal under FLSA. Only public-sector employers can give comp time.

Day rate / piece rate without overtime

A contractor pays a fixed day rate per worker regardless of hours. The worker works 6 days at 10 hours each = 60 hours. The flat day-rate pay was meant to cover the work.

Under FLSA:

• The day rate (divided by hours actually worked) is the regular rate
• Hours over 40 require overtime at 1.5x that regular rate
• Worker worked 60 hours; the first 40 are at straight rate, the next 20 must be paid at 1.5x
• Back wages owed: the difference between what was paid and what should have been paid for those overtime hours
• Plus liquidated damages (often equal to the back-wages amount)

Failure to track hours

Many contractors don't track tech hours accurately. Under FLSA:

• Employer must keep accurate time records
• If records are missing or inaccurate, the employee's good-faith recollection prevails
• An audit will assume the employee's claim is correct unless the employer can prove otherwise

This is the most expensive violation: a year of unrecorded hours can lead to a settlement based on the employee's claim.

Misclassifying as independent contractor

Some contractors classify workers as 1099 independent contractors to avoid FLSA. The DOL test:

• Independent contractor: economic independence; provides own tools; works for multiple clients; bears risk of profit/loss; not directly supervised
• Employee: economically dependent on the employer; uses employer's tools; works for one client primarily; doesn't bear risk; is supervised

A "tech" working full-time for one contractor with the contractor's tools, supervision, and uniform is an employee, not an independent contractor. Misclassification is one of the most-enforced violations.

How to comply

1. Track all hours worked

• Time clock (manual or digital)
• Time sheets with daily entries
• GPS tracking (some service businesses)
• All time worked, including travel time between job sites

2. Pay overtime on hours over 40 per workweek

Define the workweek and write it down. A workweek is a fixed, recurring period of 168 consecutive hours - seven consecutive 24-hour days. It can start any day at any hour, but once established it stays put. Put it in the handbook. Changing it to dodge overtime in a busy week is itself a violation.

Overtime is per workweek, not per pay period. On a biweekly payroll, a tech who works 50 hours one week and 30 the next is owed 10 hours of overtime. Averaging the two weeks to 40 each is one of the most common violations in the trades, and it is easy for an auditor to spot in the time records.

The workweek is not the calendar week and not the job. Hours are counted by the employer's workweek regardless of which customer, which crew, or which job number they were worked on. A tech who splits time between two divisions of the same company still has one workweek and one 40-hour threshold.

Count everything that is hours worked, then apply the threshold:

• Time between job sites during the workday
• Time loading the truck, stocking parts, and paperwork at the shop
• Required training and required meetings
• On-call time where the employee is not free to use the time for their own purposes
• Time spent on the phone with dispatch or a customer after hours
• Work the employee performed that you did not authorize but knew about or should have known about. "I told them not to work overtime" is not a defense if the work happened and you accepted the benefit of it.

Pay it at 1.5 times the regular rate, calculated per workweek using the regular rate as defined above, including any non-discretionary bonus or commission earned that week. If a bonus covers multiple weeks, it gets allocated back across those weeks and the overtime is recalculated.

Pay it on time. Overtime is due on the regular payday for the period in which it was worked. Deferring it, banking it, or paying it out later as a bonus does not satisfy the requirement. Comp time in place of overtime is not available to private-sector employers.

Do not net it against anything. You cannot offset overtime with tool allowances, truck use, uniform costs, or a prior overpayment without following the narrow rules that govern deductions. Deductions that push the effective rate below minimum wage, or that cut into overtime pay, are their own violation.

Check your state. Federal law is the floor. Some states require overtime after a set number of hours in a single day, some require a seventh-consecutive-day premium, and some define the regular rate differently. Where state law is more generous, state law governs.

Keep the arithmetic. Retain time records, the regular-rate calculation for any week with a bonus or commission, and the pay stubs showing the overtime line. When a claim comes in years later, the employer with the records wins and the employer without them does not.

3. Classify by the duties actually performed

Classification follows what the person does, not the job title on the offer letter, not whether they are paid salary, and not what they agreed to.

Run the duties test, not the label. A working foreman who spends most of the week on the tools is non-exempt even with a salary and a title. The executive, administrative and professional exemptions each have their own duties test in 29 CFR 541, and the salary basis is only one prong of it.

Treat the independent-contractor question separately and sceptically. Control over how and when the work is done, provision of tools and vehicle, exclusivity, and permanence all point to employment. A signed agreement calling someone a contractor does not settle it, and the same facts get reviewed by the DOL, the IRS and your state's unemployment agency, which do not have to agree with each other.

Re-check on promotion and on change of scope. The common failure is a tech who was correctly non-exempt, gets a lead or supervisor title, and is switched to salary with no change in what they do all day. That is the classification most often overturned.

4. Audit yourself once a year

Pull a random week and recompute it end to end for two or three people, including anyone who earned a bonus or worked a seventh day. If the regular rate on the stub does not match what you compute, the error is systematic, not isolated.

Reconcile scheduled hours against paid hours. Travel between jobsites, loading and pre-trip, mandatory meetings and on-call time that restricts the employee are the categories that quietly go unpaid and that generate the largest back-pay exposure.

Fix and pay forward, promptly. Where you find an underpayment, pay it with the next cycle and document what happened. Voluntary correction is treated very differently from an error found by an investigator, and the exposure compounds for every pay period it stays unfixed.

References

• 29 USC 201-219 (Fair Labor Standards Act).
• 29 CFR 778 (Overtime Compensation).
• 29 CFR 541 (Defining White-Collar Exemptions).
• DOL Wage and Hour Division Fact Sheets.
• DOL FLSA Exemption Tests.
• State wage and hour laws (some states more stringent than federal).
• Manuall internal: Universal Hiring First Technician, Universal Payroll Setup Service Business.