Overtime occurs when an employer requires or permits an employee to work extra hours over and above their normal working hours for the day or week. Where overtime is worked, this can take the form of paid overtime (normally at a premium rate), unpaid overtime, or the hours worked in overtime are recompensed by time off in lieu from normal working hours, either on a like-for-like basis or at a 1.5 rate.
In the United States the Fair Labor Standards Act (FLSA) requires employers to pay nonexempt employees time and a half the regular rate for all hours worked over 40 in each work week. The regular rate of pay can be the hourly rate or it can be calculated on a piece rate, salary, commission, or other basis, but the overtime compensation due to employees must be computed on an hourly basis. Discretionary bonuses, however, are excluded from such calculations. Hours cannot be averaged over two or more weeks, except in certain prescribed cases such as hospitals and nursing homes, when employers can use an 80-hour standard over a two-week period. Otherwise, even though overlapping work weeks may cause computational problems, the statutory 40 hours in a single work week prevails.
Employees classified as executive, administrative, professional, computer, or outside sales staff, however, are exempt from the overtime provisions of the FLSA and these form a growing proportion of the workforce in the United States.
The FLSA, which provides a base on which individual states are free to build, has no limitation on the number of hours an employee may work in a given work week. In contrast, the European Union's (EU's) Working Time directive sets a 48-hour limit to the working week (although certain exemptions and averaging are permitted by national laws). This is because the EU wishes to discourage overtime: It considers that workers are more likely to suffer adverse health problems and/or be more prone to accidents if they work long hours. Accordingly, unlike the United States, the EU does not prescribe any payments for working beyond normal hours and practice in member states varies. In the United Kingdom, for instance, manual workers traditionally receive premia for working beyond 40 hours per week.
Arguably, the provision of overtime pay has perverse consequences. It encourages workers to carry out their work slowly, as they will be rewarded at a premium rate if they are required/permitted to work over and above their normal hours. Also, absence procedures can be abused where employees deliberately take "sick leave" so that their colleagues can cover for them and earn overtime payments. Furthermore, researchers have found that manufacturing plants that use paid overtime are not more efficient than those that do not.
Conversely, overtime pay gives the employer flexibility to deal with peaks and troughs in the demand for goods and/or services; it enables the employer to increase the number of hours worked of permanent employees quickly and easily, without resorting to temporary employees. Furthermore, overtime payments at a premium deter the employer from using overtime unnecessarily and at the same time prevent employees from being exploited. The employer will, however, need accurate management information systems to ensure that overtime is awarded equitably. If some employees perceive they are not being given the opportunity to earn overtime pay unlike their colleagues, grievances can result.
There is a gender issue to overtime payments. Statistics show that men are more likely to receive overtime payments than women. Also, both in the United States and the United Kingdom, it is usually implicit, if not explicit, that managers will work whatever hours are required to ensure the fulfilment of their responsibilities, and in some sectors, such as the financial services, there is a long hours culture. The British Trade Union Congress calculated that over a fifth of all employees put in an average of seven hours overtime a week in 2007. As the issue of work/life balance creeps up the agenda, the emphasis is shifting from debates about rewarding overtime to debates about curtailing overtime.
In 2007, over a fifth of workers in the United Kingdom put in an estimated average of seven hours overtime every week.
Internal Labor Market, Labor Standards, Management Information Systems, Variable Costs, Women in Business, Working Hours, Work/Personal Life Balance
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