Despite its outdated terminology, "Chinese overtime" is still at times used to describe the fixed salary for those who work a fluctuating workweek. It also applies to work situations involving piece-rate pay and day rates. Still, its primary purpose is to ensure employees who work extra hours when receiving a fixed salary are compensated fairly for their additional labor.
Typically, employees who receive a fixed salary will receive additional pay that equals half of their normal rate for hours worked over forty in a workweek. The Fair Labor Standard Act states explicitly that employees covered by this law must be paid overtime when working more than forty hours in their week and that the pay rate cannot be less than time and a half of their normal wages.
Understanding How Chinese Overtime Works
Typically, when an employee has varying work hours from week to week but receives a set salary, their employer may use a fixed salary for fluctuating workweeks to determine the amount of overtime they receive. This is "Chinese overtime" and generally favors the employer's budget, but there are specific protocols that go with this method of overtime compensation that must be met to qualify:
- Must work variable hours throughout your workweek
- Must receive a fixed salary for those hours worked regardless of how many hours on the job that pay period
- Salary must be enough that should they work overtime, the sliding scale applied to those extra work hours are never paid at less than minimum wage based on their regular rate.
To determine your regular pay rate as a salaried employee, you divide your fixed salary amount by the number of hours worked in that pay period. It can't be less than $7.25 an hour by law. This pay structure is frequently seen in the United States Postal Service for rural route carriers. Regardless if they finish their route in six hours or fifteen, they get the same fixed amount of pay until exceeding the number of work hours allowed in their salary agreement.
But, unlike non-salaried employees, those who receive a fixed salary need only be compensated at a half-time rate instead of time and a half for their overtime hours—confused yet?
You may be noticing a blatant advantage to your employer in the math behind this type of overtime compensation. That's because it does. When fixed salary employees work extra hours, their regular rate essentially gets reduced, giving their company a break on the cost of their wages. This is a primary example of a sliding scale over time, which means you get paid less for every extra hour you work.
By purposely making your workweek longer, your company is essentially paying less to get their work completed. Even if an employer doesn't have enough work to fill up your workweek to forty hours, they still must pay your regular salary, which raises your standard rate.
Criteria to Qualify for Chinese Overtime
Generally, working a schedule where you only gain or lose a few hours each week doesn't fall under Chinese Overtime rules. But, FLSA regulations aren't specific about how much your hours have to fluctuate each workweek to be a variable workweek. In reality, it doesn't even have to be a day-to-day or week-to-week variability either, but it could just be a busy season scenario compared to other times of the year when workflow is slower.
Further, laws don't limit how many hours you can work in a workweek or what days you can perform overtime duties. However, any work you've done to receive a variable overtime rate must fall within a consecutive 7-day 24-hour period (168 hours).
Why Do Employers Call It Chinese Overtime?
It's important to understand that the phrase "Chinese Overtime" is slang. Because it's a fixed salary overtime policy that typically favors employers, it may have been created to allude to the principles of a communist government. The use of this term was usually intended as an insult towards a company using unfair pay practices of its salaried employees. The reality is that it has no basis in fact when compared to how Chinese employment laws work, making it an outdated pejorative.
Ironically, compared to U.S. employers, Chinese companies and the labor laws governing them are employee-friendly compared to employment policies used in the United States.
How Do Chinese Employment Laws Pay Overtime?
When calculating overtime pay, Chinese labor laws have stringent regulations in place. Some policies include that any hours worked over eight in a single workday should be paid at time and a half of their regular rate. For some employees, they receive double time working the weekend and triple when working on national holidays.
Further, employees are not to be working more than 36 hours extra within any given month or be required to be on the job for more than three hours past their normal schedule in a day. While this may sound generous, much like in the United States, there are some loopholes that employers can take advantage of. For instance, employment agreements can modify these restrictions, but employees must consent, just like in the U.S.
Chinese Overtime Litigation in the United States
If you are an employee being taken advantage of by your employer through Chinese Overtime tactics, you have every right to be disgruntled and are not alone! There are numerous lawsuits throughout the United States right now where the legality of this practice is being challenged. Big names like The Pepsi Beverages Company, for example, are currently litigating cases related to how they've incorrectly paid their fixed-salaried employees who have worked overtime hours.
The soda manufacturer is still dealing with a class-action lawsuit in Massachusetts alleging it failed to follow fair overtime compensation protocols in 2011 and 2012. The complainant, in this case, claims that PepsiCo wrongly adjusted his and other employees' overtime pay at the half-time rate instead of at time and a half of their regular rate. It was also made known in the case that the plaintiff in this class-action wasn't even a salaried employee!
According to the complainant, non-salaried employees routinely had their pay arbitrarily adjusted based on the type of circumstances leading to their overtime hours worked. This included reduced holiday pay, bonuses when working extra days, and commissions paid out for achieving agreed-upon milestones on the job.
Even Coca-Cola has found itself on the receiving end of overtime pay controversy and lawsuits because it exploits the hourly requirements behind fluctuating workweek overtime pay. The company is currently accused of purposely increasing delivery routes so they cannot be completed within a standard 40-hour workweek. This allows them to force their fixed-salary delivery drivers into a sliding scale overtime situation. They go from a regular rate of $30 to $21 because of the additional hours they must put in to finish their route.