Calculating Overtime: Tips, Tricks, and Myths

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When most people think about overtime, the most common thing that comes to mind is time and a half pay for anything over 40 hours in a week. However, overtime rules aren’t always that simple, and can sometimes be downright confusing. Incorrect handling of overtime could result in costly overpayments to employees or misreporting payroll figures to state and federal agencies, which can lead to severe penalties for the business.

Who is eligible for overtime?

Perhaps one of the most important things to be aware of is: who is eligible for overtime? Many people use hourly vs. salaried employees as a measure, but this is a very broad generalization and can be incorrect in many cases. Instead, employers should determine each employee’s exempt or non-exempt status as determined by the Fair Labor Standards Act (FLSA) to ensure compliance.

It’s important to understand that being salaried doesn’t automatically make an employee exempt, and hourly employees aren’t always non-exempt. Employees who are deemed exempt from these FLSA rules may qualify under one or more of several tests depending on the type of work they perform, and how much they are compensated.  The FLSA also specifies that some professions, such as first responders and non-management employees performing “blue-collar” work,  are never exempt regardless of how highly compensated the employees are.

What do I need to do?

The FLSA requires employers to pay at least the federal minimum wage for hours worked, and time-and-a-half pay for hours worked over 40 in a single workweek. Many states or localities have laws and regulations in place that are more favorable to employees, requiring a rate of pay that is higher than the federal minimum, or specific overtime requirements which look at more than just total hours in a workweek. Some states may require time-and-a-half or double-time pay based on daily hours worked or even based on the number of consecutive days worked. Businesses should comply with the applicable rules of the states where their employees work, and always follow the rule that is most favorable to the employees.

How do I pay overtime?

One of the easiest ways to track and pay for overtime is through the use of an electronic timekeeping system. Electronic timekeeping systems can eliminate the need for employers to hunt down physical timesheets and manually track and calculate employees’ hours for overtime. Most timekeeping solutions can be customized to meet different states’ requirements, and many offer integrated time-off policy management. Another benefit of an electronic system for tracking employees’ time is the information flow into payroll. Electronic systems can integrate with your payroll for seamless data transfer, or provide custom reports that can be imported to your payroll software.

Tracking hours, calculating overtime, and making sure employees are being paid in accordance with local, state, and federal regulations can be a tedious and time-consuming process. Working with a partner like Valor Payroll Solutions can save you time, cut down on errors, and help you stay compliant. Contact us today!

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Christina Hageny

President - Valor Payroll Solutions

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Christina Hageny

President - Valor Payroll Solutions

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