Depending on what kind of business you’re running and the type of work your employees are doing, it can be difficult to manage the various kinds of time your employees are clocking. The bottom line is this: When employees put in extra hours, employers need to be extra careful when calculating overtime and extra vigilant about paying it out.
Know the rules
According to the Fair Labor Standards Act (FLSA), overtime refers to time worked over and above 40 hours in any one-week pay period. Sounds simple, right? But there is more to it than that, including some very specific requirements regarding how that workweek is defined and which workers are entitled to and exempt from overtime pay.
Here are the basic overtime rules you need to know:
General overtime rules
- The FLSA applies on a workweek basis.
- Employee workweeks must be defined as a fixed and recurring time period consisting of 168 hours or seven consecutive days.
- Different workweeks may be established for different employees or groups.
- Averaging hours over multiple workweeks is not allowed.
- Workweeks can begin on any day and at any hour, as long as they meet the above guidelines of 168 hours or seven consecutive days.
General rules for overtime pay
- Overtime pay earned in a particular week should be paid on the regular payday for that specific pay period.
- The overtime pay rate is equal to 1.5 times the regular pay rate for all hours worked over 40 in one consecutive time period.
- The first 40 hours are at the standard pay rate, with anything over occurring at time and a half.
General rules for exempt and nonexempt employees
- FLSA overtime rules apply to all nonexempt employees.
- Most exempt employees are exempt from overtime pay— if they are classified correctly.
- Exempt employees who make under a certain salary threshold ARE eligible for overtime pay. Again, it’s important to classify employees correctly.
- Some states and local jurisdictions have their own overtime requirements, which may provide greater protection for employees than what the FLSA provides. It’s important to know your local laws.
- When federal, state, and local laws conflict, the most beneficial rule to the employee should prevail.
- FLSA requires employers to keep records of payments to employees, including overtime.
- In the case of an audit, an employer must prove payment of overtime that meets FLSA requirements.
Understanding the definition of overtime and how to properly calculate overtime wages is critical to running your business, staying in compliance, and limiting your exposure to liability and risk.
Keep your business in compliance
If the fear of wage and hour claims keeps you up at night, you’re not alone. And your worries are not unfounded.
Many companies have found themselves suddenly wrapped up in costly, time-consuming, and exhausting battles over wage and hour issues. There are many ways for businesses to end up in these situations, including misclassification of employees, inefficient time and attendance tracking, and payroll mistakes.
The good news is that many of these problems can be avoided with some relatively simple strategies:
- Paying careful attention to individual job descriptions and duties will help make sure your employees are classified correctly.
- Investing in time tracking and payroll systems that are easy, efficient, and accurate will ensure that your staff is paid correctly and on time.
- Consulting with outside experts will keep you on the right side of wage and hour compliance.
If you don’t have an in-house expert on staff, consider working with an outside company that specializes in things like time tracking, payroll, and overtime. Not only will finding the right compliance partner take work off your HR team’s plate, but it will also help reduce your business risk and keep things running smoothly. And that is time well spent.
Struggling with benefits administration and compliance? At Raffa, we’ve got tools to make it easier. We help clients identify organizational challenges, create big picture strategies, and put customized solutions in place. From tailored benefit programs to custom retirement plans to risk management services, we’ve got you covered.
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