What Employers Need to Know About Texas Overtime Laws
Managing a workforce comes with a long list of responsibilities, but few are as critical—or as risky—as payroll compliance. For business owners, understanding overtime obligations is not optional. Mistakes in calculating pay can lead to costly lawsuits, Department of Labor audits, and significant damage to a company's reputation.
Employers often try to handle these matters on their own, using generic online templates or assumptions. However, Texas labor laws and federal statutes are strict. An experienced employment law attorney can spot potential pitfalls in employee classification or record-keeping that a business owner might miss.
At The Parzivand Law Firm, PLLC, Attorney Hessam Parzivand is not just an attorney; he is an advocate with a strong background in human resources. This combination allows him to see issues from both a legal and an operational standpoint, offering practical advice that works for your business in the real world.
With offices in Stafford and Houston, Texas, the firm serves clients throughout Sugar Land and Fort Bend County, helping businesses stay compliant with state overtime laws. Reach out to The Parzivand Law Firm, PLLC, for knowledgeable guidance with your payroll practices.
Understanding Federal vs. Texas Law
Texas does not have a state-level minimum wage or overtime statute that supersedes federal regulations. Instead, the state generally adopts the standards set by the Fair Labor Standards Act (FLSA) established by the federal government.
Under the FLSA, covered non-exempt employees must receive overtime pay for hours worked over 40 in a work week. The rate is at least 1.5 times their regular rate of pay. While this sounds simple, the application gets messy. "Regular rate of pay" includes more than just hourly wages; it can include non-discretionary bonuses, shift differentials, and commissions. Texas employers must follow these federal guidelines strictly because state law provides very few exceptions.
The Texas Payday Law (Chapter 61 of the Texas Labor Code) is the primary state statute governing wage payment and outlines how employers must pay their employees. While it mirrors the FLSA on overtime requirements, it adds specific rules about how and when employees must be paid. For example, it requires employers to pay wages on scheduled paydays and provides a framework for wage claims if an employee believes they were underpaid.
The Texas Payday Law
Under the Texas Payday Law, if an employee is terminated, their employer must pay them in full no later than the sixth day after discharge. If an employee quits, they must be paid in full by the next regularly scheduled payday. This final paycheck must include all overtime owed.
Failure to meet these deadlines can result in penalties from the Texas Workforce Commission. If an employer fails to pay overtime correctly, an employee can file a claim with the Texas Workforce Commission (TWC) under the Texas Payday Law.
Exempt vs. Non-Exempt Employee Status
A considerable area of confusion for Texas employers is determining who is eligible for overtime and who is not. Misclassification is a rampant issue. Simply paying someone a salary does not automatically make them exempt from overtime pay. To be exempt from overtime under the FLSA (and thus in Texas), an employee generally must meet three tests:
Salary basis test: The employee must be paid a predetermined, fixed salary that is not subject to reduction due to variations in the quality or quantity of work performed.
Salary level test: The employee must be paid above a specific salary threshold. This threshold changes periodically in response to federal updates.
Duties test: The employee’s job duties must primarily involve executive, administrative, or professional functions.
A common mistake occurs when an employer gives an employee a fancy title like "manager" or "supervisor," but the employee spends 90% of their time doing the same work as hourly staff. If the primary duty isn't management, they are likely entitled to overtime, regardless of their title.
How the Regular Rate of Pay Is Calculated
Many lawsuits stem from math errors rather than bad intentions. The "regular rate" is the hourly rate equivalent to what an employee is paid for a standard non-overtime workweek. If an employee earns only an hourly wage, the calculation is straightforward. If they earn $20 an hour, their overtime rate is $30 an hour. However, this can change with bonuses and commissions.
Bonuses: If you promise a production bonus for hitting a target, that bonus must be factored into the regular rate for that period. This increases the base rate, which in turn increases the overtime rate.
Commissions: Sales commissions also affect the regular rate. Employers must allocate the commission over the period it was earned to determine the correct overtime pay.
Failing to include these payments in the regular rate calculation is a frequent violation. Texas employers should review their compensation structures regularly to confirm they aren't accidentally underpaying overtime on bonuses and commissions.
The Risks of "Off-the-Clock" Work
Another major pitfall for employers involves "off-the-clock" work. This happens when an employee performs work duties but isn't clocked in. Some common examples include:
Answering emails or texts after hours
Putting on safety gear or uniforms before clocking in
Cleaning up the work area after clocking out
Working through an unpaid lunch break
In Texas, if an employer knows or should have known that work was being performed, they must pay for it. If that extra time pushes the employee over 40 hours for the week, it must be paid at the overtime rate. A strict policy forbidding off-the-clock work is a good start, but managers must enforce it as well. If a manager sees an employee working through lunch and says nothing, the company is on the hook for that time.
Record-Keeping Requirements
Documentation is your best defense for maintaining overtime compliance. The FLSA and Texas law require employers to keep accurate records of hours worked and wages paid. This includes:
The time and day the workweek begins.
The hours worked each day.
The total hours worked each workweek.
The basis on which wages are paid (e.g., "$15 per hour" or "$600 per week").
The regular hourly pay rate.
The total daily or weekly straight-time earnings.
The total overtime earnings for the workweek.
Any additions to or deductions from wages.
The total wages paid each pay period.
The payment date and the pay period covered.
If an employee claims they worked 50 hours last week and you have no records to prove otherwise, the courts or the TWC will often take the employee's word for it.
Compensatory Time ("Comp Time") Regulations
Private employers often ask if they can offer "comp time" instead of paying overtime. For example, if an employee works 50 hours one week, can the employer give them 10 hours of paid time off the following week instead of paying overtime wages?
For private sector employers, the answer is generally no. Private employers must pay overtime in cash for the pay period in which it was earned. You cannot average hours over two weeks. If an employee works 50 hours in Week 1 and 30 hours in Week 2, you still owe them 10 hours of overtime for Week 1. You cannot say they worked an average of 40 hours.
Only public-sector employees (government agencies) may use comp time in lieu of cash overtime payments under strict guidelines. Private businesses in Texas attempting this practice are likely violating federal and state laws.
Penalties for Non-Compliance
The cost of not complying with state and federal overtime laws is high. If an employer is found to have violated overtime laws, they may be liable for the following penalties:
Paying back wages: They must pay the employee the unpaid overtime.
Providing liquidated damages: They must provide an additional amount equal to the back wages (essentially doubling the cost).
Attorney’s fees and court costs: The employer may have to pay the employee's legal bills in addition to their own.
Civil money penalties: The Department of Labor may impose additional fines for willful or repeated violations.
Under the FLSA, individual owners or officers of a company can sometimes be held personally liable for wage violations. This means your personal assets could be at risk, not just the company's accounts.
Contact an Experienced Employment Law Attorney in Stafford, Texas
The Parzivand Law Firm offers more than just standard legal advice. Attorney Hessam Parzivand focuses on building real connections with clients to guide them through legal hurdles. With a solid background in human resources, he brings an approachable style that makes communication easy, whether you meet in person, speak by phone, or connect via email.
Attorney Parzivand strives to provide solutions for employee overtime that fit your budget and specific situation. With offices in Stafford and Houston, Texas, the firm serves clients throughout Sugar Land and Fort Bend County. Reach out today to schedule a consultation.