Tracking Overtime: How To Do It Accurately & Be Compliant

Do you own a small business and struggle with tracking employee overtime? 

You’re not alone.

Overtime tracking is an essential part of managing payroll. Your company can ensure that your employees are fairly compensated for the extra work they do.

Inaccurate tracking can result in costly legal disputes and penalties, so as a business owner, it’s important to have a solid understanding of overtime tracking and how to do it effectively.

So, what is overtime tracking?

In short, it’s the process of keeping track of the hours worked by employees beyond their regular working hours. 

This can include hours worked on weekends, holidays, or outside of an employee’s scheduled shift. Employers typically calculate overtime pay at a higher rate than regular pay to compensate employees for the extra time and effort they put in.

But, why is it important for your business?

Tracking overtime is essential, as it allows your business to:

1) Ensure that you compensate employees fairly for the extra time they spend working. 

2) Comply with labor laws set by the Fair Labors Standards Act (FLSA).

3) Monitor employee productivity, identify areas for improvement, and make data-driven decisions. 

4) Identify trends and patterns in employee behavior that can help inform your management decisions.

So today, we’ll provide a comprehensive guide to everything you need to know about tracking overtime in 2023. 

Let’s dive in.

What is Overtime Pay and How Is It Calculated?

What is Overtime Pay?

Overtime pay is a legal requirement. Employers pay overtime as additional wages to employees who work beyond their regular hours. They typically calculate it at a higher rate than regular pay to compensate for the extra time and effort the employees put in.

As a business owner, you need to have a solid understanding of how to calculate overtime pay.

When is Overtime Pay Permitted?

U.S. law requires employers to pay overtime, but the specific rules and regulations around overtime pay can vary depending on the industry.

Some common situations in which overtime pay is typically required include:

• When an employee works more than a certain number of hours per week or per day
• When an employee works on weekends or holidays
• When an employee works outside of their scheduled shift

Your business must understand the specific rules and regulations around overtime pay in their country and industry to ensure compliance with labor laws. 

Failure to comply with these regulations can result in significant legal and financial consequences.

How is Overtime Pay Calculated?

The method for calculating overtime pay can vary depending on the industry. 

Some common methods include:

Time and a-half

Employers must pay employees 1.5x their regular rate of pay for each additional hour worked after completing their regular working hours (i.e. 8 hours).

Ex: If an employee’s regular rate of pay is $20 per hour, their time and a half rate for overtime would be $30 per hour. So, if employees work 10 hours of overtime, employers would pay them $300 for those extra hours.

Double-time

Employers must pay employees 2x their regular rate of pay for each additional hour worked after completing a certain threshold of hours, such as 12 hours in a single day.

Ex: If an employee’s regular rate of pay is $20 per hour, their double-time rate for overtime would be $40 per hour. So, if employees work 10 hours of overtime at double-time, employers would pay them $400 for those extra hours.

Fluctuating workweek

This is a method of calculating overtime pay for salaried employees whose hours fluctuate from week to week. Under this method, the employee receives a fixed salary each week, regardless of the number of hours worked. 

When overtime is worked, the employee is paid an additional rate of 0.5x for each overtime hour worked. 

Ex: If an employee’s regular salary is $800 per week and they work 50 hours in one week, their regular rate of pay would be $16 per hour. They would then receive an additional half-time rate of $8 for each overtime hour worked, resulting in a total overtime pay of $400 for the week.

To learn more about calculating overtime pay, check out this article.

Mistakes to Avoid When Tracking Overtime

Tracking overtime accurately can be challenging, and mistakes happen. Here are some of the most common mistakes that businesses make when tracking overtime and how to avoid them:

Failing to track all hours worked

Failing to track all hours worked by your employees can result in inaccurate calculations and underpayment of overtime pay. To avoid this mistake, you should ensure that you are tracking all hours worked by employees, especially hours worked outside of their scheduled shifts and on weekends and holidays.

Failing to keep accurate records

Businesses that fail to keep accurate records of employee hours worked and overtime should expect costly legal disputes and penalties.

To avoid this mistake and possible damage to your business reputation, make sure that you keep detailed records of employee hours.

Misclassifying employees 

A common mistake that businesses make when tracking overtime is misclassifying employees as exempt when they are non-exempt. 

Exempt employees are not eligible for overtime pay, while non-exempt employees are eligible. 

So, how do you make the distinction?

Let’s go through the details. 

Who is Entitled to Overtime Pay?

While overtime pay is required by law in the U.S., not all employees are eligible for overtime pay. 

In the U.S., the Fair Labor Standards Act (FLSA) governs overtime pay and provides guidance on which employees are eligible for overtime pay.

Exempt vs. Non-Exempt Employees

The FLSA makes a distinction between exempt and non-exempt employees when it comes to overtime pay eligibility. As we mentioned, exempt employees are not eligible for overtime pay, while non-exempt employees are eligible.

Exempt Employees

These are employees who are paid a fixed salary regardless of the number of hours they work. 

They are exempt from overtime pay requirements because they are usually considered to be in a managerial or executive role, which involves more responsibility and decision-making authority.

To be classified as exempt, employees must meet specific criteria set by the FLSA. These criteria include:

• Receive a fixed salary that is not subject to reductions based on the quality or quantity of work performed
• Be paid at least $684 per week (number subject to change)
• Perform job duties that meet certain criteria related to executive, administrative, or professional work

Non-Exempt Employees

These employees are paid on an hourly basis. 

They are eligible for overtime pay when they work beyond their regular working hours.

To be classified as non-exempt, employees must also meet criteria set by the FLSA. These criteria include:

• Being paid on an hourly basis or receiving a salary that is subject to reductions based on the quality or quantity of work performed
• Being paid at least the minimum wage set by the FLSA
• Performing job duties that do not meet the criteria for exempt employees

Penalties for Non-Compliance with Overtime Pay Requirements

We can’t stress this enough: businesses that fail to comply with overtime pay requirements can face significant legal and financial consequences. The consequences can include:

Payment of back wages

Businesses that fail to provide overtime pay to eligible employees may be required to pay back wages to those employees.

Fines and penalties

Businesses that violate overtime pay requirements may be subject to fines and penalties imposed by government agencies.

Legal disputes

Employees who feel that their overtime pay rights have been violated may file lawsuits against their employers, which can result in costly legal disputes and damage to the business’s reputation.

Legal Requirements of Tracking Overtime

In the United States, the FLSA sets federal legal requirements for tracking overtime.

Overview of Federal Legal Requirements

The FLSA sets forth the following federal legal requirements for tracking overtime:

• Non-exempt employees must be paid overtime pay at a rate of 1.5 times their regular rate of pay for every hour worked beyond 40 hours in a workweek.
• Employers must keep accurate records of all hours worked by non-exempt employees, including hours worked outside of their scheduled shifts and on weekends and holidays.
• Employers cannot avoid paying overtime pay by using comp time or other forms of time off in place of overtime pay.

In addition to these requirements, there may be additional federal, state, or local laws that apply to your businesses when tracking overtime. These laws can vary depending on your industry and location.

Overview of State Legal Requirements

In the U.S., 46 of the 50 states have the same rule when it comes to overtime: after an employee completes 40 hours in a week, employers must pay time and a half for each additional hour.

However, four states have variations on this rule: 

State	Overtime Pay for More Than	Overtime Pay Rate
Alaska	8 hours per day or 40 hours per week	1.5x regular rate
California	8 hours per day or 40 hours per week (or 7th consecutive day of work)	1.5x regular rate for first 8 hours of overtime, 2x regular rate for hours beyond that
Kansas	46 hours	1.5x regular rate
Minnesota	48 hours	1.5x regular rate

For more information on the legalities of overtime, check out this video.

It covers the difference between exempt and non-exempt employees and goes over some of the common mistakes that employers make when tracking overtime. 

Tracking Overtime Benefits

Correctly tracking overtime can be hugely beneficial for employers and employees. Let’s check out a few of the benefits:

For the Employer

Avoiding legal trouble

As we discussed earlier, employers are legally required to track and pay overtime to non-exempt employees. Failure to do so can result in legal trouble.

Improved labor cost control

Accurate overtime tracking helps employers better understand their labor costs, which can help them make informed decisions about staffing levels and employee scheduling. 

Employers who have a clear understanding of their labor costs are better equipped to manage their business effectively.

Increased employee productivity

When employees know that their overtime will be accurately tracked and compensated, they are more likely to be motivated to work harder and be more productive. 

This can result in increased efficiency and profitability for the employer.

Better employee relations

Accurately tracking overtime can help build trust between employees and employers. 

When employees feel that they are being treated fairly and compensated for their hard work, they are more likely to feel valued and motivated to work hard for their employer.

For the Employee

Accurate overtime tracking is equally important for employees. It ensures that they are fairly compensated for their hard work. 

Here are some of the benefits of tracking overtime for employees:

Fair compensation

As we discussed, employees who work more than 40 hours in a workweek are entitled to overtime pay at a rate of 1.5 times their regular rate of pay. 

Accurately tracking overtime ensures that employees are paid fairly for their hard work.

Better work-life balance

When employers accurately track overtime, employees are less likely to be overworked and burned out.

This can lead to a better work-life balance, which can result in increased job satisfaction and employee retention for your business. 

Increased motivation

When employees know that their hard work is being accurately tracked and compensated, they are more likely to be motivated to work harder and be more productive. 

This can result in increased job satisfaction and career advancement opportunities.

Legal protection

Employees who feel that they have been unfairly compensated for their overtime can choose to take legal action against their employer when they have accurate records.

Tracking Overtime Methods

Fortunately for your business, there are a number of ways to track overtime.

These methods range from traditional methods like paper timesheets to modern tools like overtime tracking apps. 

In this section, we’ll explore two popular methods for tracking overtime and explain how they work.

Tracking Overtime with Excel Spreadsheets

Despite requiring manual data entry, Excel spreadsheets are a very common method for tracking employee overtime. 

Here are some steps for tracking overtime with an Excel spreadsheet:

1. Create a spreadsheet that includes each employee’s name and the days they worked.

2. Add columns for the hours worked each day.

3. Use a formula to calculate the total number of hours worked each week.

4. Use another formula to calculate the number of overtime hours worked each week.

5. Compare the overtime hours worked to the legal threshold for overtime.

6. Calculate the overtime pay owed to each employee.

Excel spreadsheets can be a useful tool for tracking overtime, but they can be time-consuming and error-prone. 

If you choose this method, you should ensure that your spreadsheet is accurate and up-to-date frequently.

Check out this article for a free customizable overtime tracking spreadsheet template. 

Tracking Overtime with an Overtime App

While manually tracking overtime can work, overtime apps can streamline the process of tracking employee time and reduce the risk of errors and fraud. 

Some popular features of overtime tracking apps include:

• GPS tracking to verify employee location
• Automatic clock-in and clock-out times
• Real-time data and reporting
• Easy integration with payroll systems

Here are some steps for tracking overtime with an overtime app:

1. Choose an overtime app that suits your business needs.

2. Ensure that all employees are trained on how to use the app.

3. Have employees clock in and out using the app.

4. Use the app to track employee hours worked and calculate overtime pay.

An immensely effective overtime app is the Workyard Timesheet App, which allows employees to clock in and out with just one tap, allowing employers to review and approve employee hours in real time. 

What to Look for in an Overtime App

Overtime tracking can be a tedious and time-consuming task for employers, but it doesn’t have to be.

There are many overtime apps on the market that can help automate the process and save your business time and money. 

When evaluating your options, it’s essential to choose an app that meets the unique needs of your business. Here are some key features to look for when selecting an overtime app:

Automatic Overtime Tracking and Calculations

One of the most important features of an overtime app is the ability to automatically track and calculate employee overtime. 

The app you choose should be able to identify when an employee has worked more than the legal threshold for overtime, and automatically calculate the overtime pay owed to the employee. 

This feature will save you from headaches and reduce the risk of errors in your tracking.

Time Tracking

The app you choose should have time-tracking features that allow employees to clock in and out easily from their phones. 

As an employer, you can use this feature to track hours worked, breaks, and overtime hours. 

This will help you better understand your labor costs and make informed decisions about employee scheduling.

Location and Mileage Tracking

If your business requires employees to work off-site, location, and mileage-tracking features will come in extremely handy. 

Some overtime apps include GPS tracking features, which will allow you to verify employee location and ensure that employees are working where they are supposed to be. 

If you require employees to travel for work, keep an eye out for an app with mileage tracking features. This will allow you to easily reimburse employees for accumulated travel expenses.

Time Card Reports

Overtime apps should always include time card reporting features, which will allow you to review and approve employee hours worked. 

As an employer, you should be able to access employee time cards in real-time and make changes or adjustments as needed.  

Productivity Insights

An efficient overtime app should also include productivity insights, allowing you to track employee productivity and identify areas for improvement. 

This feature will help identify which of your employees are the most productive, so you can train any employees who may need additional support.

Payroll Integrations

It’s key to choose an overtime app that integrates with your payroll system. 

This will help streamline the payroll process and reduce the risk of errors. The overtime app should be able to export employee hours worked and overtime pay owed directly to the payroll system, eliminating the need for manual data entry.

The Benefits of Tracking Overtime with an Overtime App

Now that we know the key features you should look at, you might be wondering how they will actually help your business. Let’s go over just a few of the many benefits:

Compliance

One of the primary benefits of using an overtime app is that it can help your business stay compliant with the labor laws we discussed earlier.

By automatically tracking overtime hours, you can minimize the risk of errors and ensure accuracy in calculating overtime pay. 

Overtime tracking apps ensure that employers are always in compliance with labor laws and can avoid penalties and fines that may result from noncompliance.

Additionally, your employees don’t need to remember to log overtime as the app automatically records hours worked. This reduces the workload for employees and helps them stay focused on their tasks, increasing productivity and overall profit for your business.

Accuracy

Overtime apps use precise GPS monitoring to track employee hours and location, reducing the likelihood of errors in tracking employee time worked. 

You can monitor and track employee hours worked in real-time, which allows you to respond to any discrepancies, quickly. 

Conflict Resolution

With an accurate trail of employee overtime, you will have all the evidence you need to resolve workplace disputes over overtime hours worked or disagreements about work schedules. 

Overtime apps can provide an objective and accurate record of employee hours worked, helping to resolve disputes fairly and quickly.

Seamless Payroll

An overtime app can help streamline the payroll process. 

The best overtime apps integrate with popular payroll and accounting systems, making it easier for your business to process payroll and reduce the likelihood of overpaying for overtime. 

How Workyard Can Help

Workyard is an overtime app designed specifically for contractors and field service businesses. 

The app provides a range of features to help employers track employee hours, including time tracking, location tracking, and automatic overtime calculations. 

Workyard also includes a range of additional features, such as project tracking and invoicing, making it a comprehensive solution for contractors and field service businesses.

The Bottom Line on Overtime Tracking

Tracking overtime is an essential task. The benefits of accurate and efficient overtime tracking cannot be overstated for employers and employees.

While spreadsheets can be effective for small businesses with fewer employees, they can become cumbersome and error-prone as the business grows. On the other hand, overtime apps offer a range of features that can help automate the process, improve accuracy, and streamline the payroll process.

When considering an overtime app, employers should look for features like automatic overtime tracking and calculations, time tracking, location and mileage tracking, time card reports, productivity insights, and payroll integrations. Workyard is an overtime app designed specifically for contractors and field service businesses, offering a comprehensive solution for tracking employee hours and managing projects.

With the right overtime tracking solution in place, employers can ensure compliance with labor laws, avoid costly errors, and resolve workplace conflicts quickly and fairly. Sign up for a free trial of Workyard’s overtime tracking app today!