Overtime Pay: Up to Speed on the Details

Your business must comply with the minimums for calculating and paying overtime as required by federal and state laws. The Wage and Hour Division of the U.S. Department of Labor regulates overtime pay using the Fair Labor Standards Act, which requires that hourly employees who work more than 40 hours in a workweek must be paid at a higher rate for the overtime hours, a minimum of one and a half times the employee’s regular pay rate. (State rules may be more stringent.)

Overtime pay seems simple on the surface: hourly pay rate times 1.5 times overtime hours worked. But sometimes you may calculate rates improperly by not including longevity pay, shift differentials or non-discretionary bonuses such as educational stipends. It is a common but serious error to fail to use the right amounts when calculating pay. Starting with the correct amount can get complicated, so consult a payroll professional to make sure you neither overpay nor underpay overtime.

Other Essential Rules

It’s important to make sure that wages are paid when due — the next regularly scheduled payday. You see, FLSA says late pay is the same as no pay. This could make you liable for liquidated or double damages.

And know, too, gimmicks to avoid: granting employees compensatory time instead of cash for overtime hours worked, or averaging hours from work period to work period; they are simply not permitted under FLSA. Overtime means time actually worked beyond a prescribed threshold. The normal FLSA work period is a workweek — seven consecutive days — and the normal FLSA overtime threshold is 40 hours per workweek.

Your attendance policy needs to state that all overtime must be preapproved by managers. However, you cannot refuse to pay if an employee worked without approval.

How to Keep Track of Overtime

There is a wide variety of programs available to help keep track of hours to make sure you aren’t inadvertently violating federal or state rules. Depending on the size of your company and the complexity of your needs, you can explore various options. Just keep in mind that no matter what program you use, the company has to take responsibility. Those who blame their software for errors may find themselves in the same position as students who say the dog ate their homework. Give us a call and we’ll help you make the right choices.

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About Payroll Dynamics

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