Accurate Time Tracking Is So Much Easier With Workyard
Few things can sink a project as fast as unchecked overtime. But before you can start managing your overtime, you need to know how to calculate it. This guide will help you understand the rules around overtime, how to calculate overtime pay and how to manage it more effectively so you save time and money.
Let’s start with defining what overtime pay actually is.
Overtime pay is an employee entitlement that ensures those who work more than their standard work week hours are compensated at a higher rate of pay for the additional hours worked.
Note this is always measured based on a predefined work week schedule you have set for the employee regardless of your payroll frequency. For example, you may pay an employee bi-weekly, but for the purpose of calculating overtime, you are always performing the calculation based on a standard work week starting on a specific day.
Federal overtime laws require employers to pay non-exempt employees who work more than 40 hours in a week at least time and a half for the extra time they put in.
For example, if an employee makes $20 an hour, they would receive $30 for each hour of overtime they work.
Overtime laws were included in the Labor’s Fair Labor Standards Act (FLSA) in 1938 and have been part of federal labor laws since then. In addition, certain states also have their own overtime laws that complement the federal rule, more on this later.
The Fair Labor Standards Act (FLSA) provides guidance to help you determine which employees on your team are entitled to overtime pay, and which ones aren’t.
It’s important to get the employee classification right because misclassifying employees can result in costly penalties that can retroactively apply to all of their past wages while working for your business.
Here is a summary of the FLSA’s guidelines on how to determine whether an employee is exempt or not exempt from overtime:
Keep in mind laws regarding exempt versus nonexempt can differ at a state level, so make sure you check the specific definition in your state.
For the most part, individual states follow federal law—overtime is paid after 40 hours worked in a work week. But there are some exceptions you need to be aware of when you calculate overtime pay.
When state law conflicts with federal law, the decision is always made based on what is better for the employees but usually, state laws are complementary to federal law and just add additional conditions whereby the employee is entitled to overtime.
If you’re not clear about your state’s overtime laws, you should talk to a payroll specialist—they’ll be able to point you in the right direction.
For most non-exempt hourly workers, the federal rule is that every hour over the standard 40-hour workweek must be paid as time and a half. Some states have more complex overtime rules, but if you are simply subject to the federal rule, the calculation is as simple as follows:
Of course, that’s not all this employee would be making. They would also be making their standard wage ($20 x 40 hours = $800). Their full wage for the week would be $1,250.
Some employees are exempt from overtime. Most salaried employees, such as administrative personnel, are considered exempt from overtime however new regulations, effective January 1, 2020, do require exempt employees paid less than $684 a week to receive overtime pay. Independent contractors do not qualify for overtime pay.
As noted above, salaried employees may also be classified as non-exempt and be eligible for overtime.
Calculating overtime for these employees is a very similar process to calculating overtime for hourly employees except for you have to determine the salaried employees’ hourly pay rate.
To calculate overtime for a salaried employee:
In situations where you pay your non-exempt employees’ at different pay rates depending on the jobs or types of tasks they are doing you will need need to use a Weighted Average Overtime (WAOT) calculation method.
The Weighted Average Overtime Calculation method will help you compute a weighted average pay rate to be used for the employee when calculating overtime. The easiest way to explain this is with an example:
The short answer is yes. Failing to pay overtime exposes your business to lawsuits from employees that are currently employed by you and also past employees.
The Department of Labor actively investigates businesses that violate overtime laws, often triggered by employee complaints. When breaches are found the employer can be required to pay back the wages owed and in addition a liquidated damages penalty. Violations that appear to be committed on purpose can also result in fines of up to $10,000 and even imprisonment if the business owner is a repeat offender.
Calculating overtime is easy, but actually tracking and collecting overtime hours from your employees can be a nightmare.
If you’re still tracking employee hours through paper time keeping, text messages, or emails, you should seriously consider adopting a time tracking app like Workyard that will automatically capture and calculate overtime for you.
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Workyard provides leading workforce management solutions to construction, service, and property maintenance companies of all sizes.