Despite its frequent usage across occupations, overtime remains an elusively curious phenomenon from a payroll perspective—especially if you’re new to calculating your own company’s payroll. Overtime is expensive to maintain and even pricier to screw up; for that reason, we’re addressing some of the most common questions you’re likely to have about overtime so that you don’t make the wrong call.
When is Overtime Due?
Overtime pay—which is one-and-a-half times an employee’s usual rate—typically applies to non-exempt employees who work for more than 40 hours in one workweek, though some states mandate that you also pay overtime for any hours worked past the eight-hour mark in a day. It’s also important to know that, in the event that your state has different overtime rules than the FLSA, you need to allocate overtime based on whichever option pays more.
You do not have to pay overtime to exempt employees—many of whom merit a salary—or contractors.
You owe non-exempt employees their overtime pay on the first paycheck following the overtime period. This means that, depending on your payroll schedule, employees may wait a week, a few weeks, or a month to receive their overtime compensation. What you cannot do is wait for a paycheck period to pass before paying overtime; that money should appear as soon as possible after the employee earns it.
Do Weekend or Evening Shifts Merit Overtime?
Weekend and evening shifts fall under the same category as any other overtime—that is, they don’t necessitate overtime pay unless they involve going over the 40-hour workweek (or, in some states, eight hours in a single day). So, you don’t have to pay overtime for an eight-hour Saturday shift or time spent working at night just because of the date or timeframe itself.
If you find yourself in need of workers for less-desirable shifts (e.g., those that take place at night or on weekends), you can always incentivize them by offering to pay overtime; just know that it isn’t inherently required by law.
When is Double Time Due?
Technically, double time isn’t a requirement under the FLSA. As such, any payment of double time needs to adhere to your company’s in-house policies; for example, if you promise to pay employees double their usual rates for attending certain events or working an extra few hours, you owe them that money. To avoid confusion, try to anticipate and list circumstances under which you feel comfortable paying double time in the employee handbook.
Can You Average Work Hours?
In short: no. Fringe situations aside, the FLSA requires you to consider only a single week when calculating overtime; in other words, an employee on a bi-weekly schedule could work one hour of the first week and then 49 hours of the next week, and you would still have to pay them for nine hours of overtime. The general rule is that if the employee in question works more than 40 hours per week, you owe them overtime.
It’s also important to remember that some states, such as California, require you to pay overtime to employees who work more than eight hours in one day. This means that an employee working a traditional 40 hours in only four days would earn eight hours of overtime: two hours for each day they worked a ten-hour shift. Make sure you check your state’s overtime legislature before determining a payroll plan.
Is Overtime Based on Hours Worked or Hours Paid?
Overtime is exclusively based on hours worked, so things like vacation time and paid time off don’t count toward the 40-hour “working” cap. This can create some confusion if you’re in a state that judges overtime from a post-eight-hour day perspective; in a situation such as this, an employee who works 32 hours over three days and then takes two days of paid vacation would receive overtime—not for the 16 hours of PTO, but for the extra few hours of the three days they did work.
However, as a blanket rule, you should not pay employees overtime rates for paid time off.
Do Seasonal Workers Get Paid Overtime?
It depends on the state in which your seasonal business operates. While the FLSA excludes seasonal businesses from its overtime laws, many states require you to pay overtime regardless—and, in this case, state law supersedes the FLSA. As with most payroll circumstances, it’s incredibly important that you check with your state before making any payroll calls, especially in a grey area such as a seasonal business.
What Can I Do About Unauthorized Overtime?
From a legal perspective, not much: Overtime is still overtime, and paying the requisite time-and-a-half rate to employees who work it is still mandatory as long as they’re non-exempt. However, the simplest solution to unauthorized overtime is to communicate with your employees. Establishing a hard “no” to overtime unless you approve it beforehand both sets boundaries for employees and sets the legal precedent for discipline toward—and even firing of—employees who disobey.
Of course, mistakes happen, and employees who accidentally work an extra hour here or there shouldn’t end up at the top of your list of pain points; that said, having the infrastructure in place to let go of any non-exempt workers who intentionally abuse your overtime policy is a wise move.
Finding a way to balance your usual operational costs with the crushing burden of overtime can prove difficult, especially for a new business-owner. For more information about how you can turn overtime woes into overtime wins, call Abacus Payroll at (856) 667-6225 today.