A couple years ago I worked with someone who, if he worked too many overtime hours (which came around from time to time), would get into the next tax bracket and it wouldn't be worth it. Not sure how much he got paid or how many overtime hours were required for that to happen, though.
I used to work in manufacturing, and it was fairly common to hear people decline overtime using the reason that it would be taxed enough more that it wasn't worth it for them. Part of this might have been due to a misunderstanding of how income taxes work (everyone I knew there, including myself, had the impression that higher rates were applied to the entire amount of your income), but that doesn't alter the point in this case.
So an employer could make someone work 400 hours of overtime for a couple of years, yet never pay them the overtime rate. They could do this by reducing the employee's hours in the third year, so that averaged over 3 years no overtime was due.
That sounds like a great deal... for the employer.
Strictly speaking there is a pay threshold, since there's a pay threshold for overtime exemption. The (more general) problem is, that threshold is ridiculously low, something like $25,000/year.
Eventually I left and a friend of mine accepted their deal, he ended up racking up 400 hours of overtime (which he never got to take or got paid out) in his first three months.
An employment lawyer and/or the Department of Labor would be very interested in this. It takes more than simply putting someone on salary to exempt them from overtime (in the US).
Most 40-hr/wk full time employees don't make overtime.
And bonuses are usually/always taxed.
And with the recent change in things, the threshold at which itemization becomes worth while has become significant.
Most. Not all. None of your exceptions changes things.
The IRS should assume a net-0 based on tax records, and if the person wants to do something else, they're free to file a return.
I would hope that if someone was putting in more than 40 hours regularly they'd be rewarded with overtime pay?
I, personally, wouldn't work overtime regularly without overtime pay. I've worked three software jobs when overtime was needed the overtime was paid. I also don't make SV-level salary though.
The exempt employees working for 50% more hours than they are compensated for really miss the boat. If you want to work 80 hours a week, god bless you. Just don't make it a charitable contribution.
I had to work a 90 hour week a few weeks ago to address a operational crisis. That netted me a bunch of overtime and a week off.
In my experience they really hate to pay overtime, instead, you must put down exactly 40 hours per week. Any less and they can't bill the government the full normal maximum, any more and they have to pay time and a half or more, which the government generally doesn't go for.
I know many people that are hourly that loves overtime. 1.5x-2x pay means a world of difference to them. Jobs for them ranges from drivers, construction, to programmers. Some are hoarding money for early retirement, just to make more, others are contract basis so earning 2-3x projected amount enables them to take half the year off.
This is to the point where many of these friends loathe to take an exempt job because they know their income will likely be cut in half on the initial transition without raises/promotions.
The price of overtime to an employer isn't only (or even mostly) the pay - it's also the impact on the rest of the employee's work. Tom DeMarco and Timothy Lister claim in "Peopleware" that "there will be more or less an hour of undertime for every hour of overtime".
If you made $32.05 dollars per hour for 30 hours a week (50K a year) and paid 10% tax on those dollars, you would earn an effective after tax hourly rate of $28.84. If all dollars earned after 50K were then taxed at 15%, your effective after tax hourly rate for working more than 30 hours would be $27.24. A one dollar and six cent reduction. I believe the purpose of time and a half overtime is partly to correct this problem.
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