It’s official: Gone are the days when employees promptly clock out at 5 p.m. Whether they’re burning the midnight oil during busy season or finishing up a project at home, many employees take their work beyond the traditional nine to five grind—and should be compensated properly.
Overtime pay is the logical solution, but what is overtime pay, and how does it work?
What is Overtime pay?
According to the Fair Labor Standards Act, which also places regulations on child labor and minimum wages, overtime pay is considered any hours that are worked over a 40-hour workweek. In the case of overtime, a workweek is defined as a recurring period of 168 hours, or seven 24-hour days. Employees can keep track of their overtime pay by physically clocking in and out of the office, writing their hours down, or keeping a digital time card.
Is Overtime Pay Required by the Law?
The short answer? Yes. The Fair Labor Standards Act, or FLSA for short, requires companies to pay their employees overtime once they exceed the 40-hour workweek; however, overtime laws can vary state by state. The state law in California, for example, says companies are required to pay double the employee’s regular rate when a workday exceeds 12 hours. However, some state laws (like in Texas) have overtime policies that are more aligned with FLSA.
Keep in mind the FLSA’s overtime policies are the bare minimum. While some companies will pay their employees double time on holidays, others will kick into overtime at 30 hours instead of 40.
But no matter where you live or what your company’s exact policies are, one thing's for sure: It’s important to comply with the law. According to the United States Department of Labor, employers who do ignore overtime requirements are subjected to civil money penalties for each violation.
What About Double Time?
If you started to do your overtime research, there’s a good chance you’ve at least heard of double time. As the phrase suggests, double time is twice the amount of a person’s hourly rate. Translation? If a person’s rate was $15 per hour, their double time wage would be $30 per hour.
But what gives? When do you up the ante to double time?
Well, it’s more complicated than that. While there is no federal law that requires employers to pay double time, some states have their regulations in place.The state law in California, for example, says companies are required to pay double the employee’s regular rate when a workday exceeds 12 hours.
More times than not, a double time rate is established between a company and their employees. While some businesses pay their employees double time when they work on weekends or during a national holiday, others might double an employee’s rate if they work more than seven days in a row.
Double time is not a one-size-fits-all situation. Before establishing a double time policy, think about the service your business offers. For example, some businesses might need to be open every day, so you might want to offer double time for holidays like Thanksgiving and New Year’s Day.
Who is Eligible for Overtime Pay?
So everyone’s entitled to overtime, right? Well, not so fast. There are a couple factors that play into whether or not your employees are eligible for overtime pay.
First things first: Where do your employees fall on the corporate ladder? The FLSA has a white-collar exemption, which applies to “any employee employed in a bona fide executive, administrative, or professional capacity.”
As of January 1, 2020 , employees can be exempt from overtime payments if they make $684 each week, or $107,432 per year. According to the new regulations, an employer can add bonuses and incentive payments, like commissions, to meet up to 10% of the salary threshold. That being said, many people don’t have a six-figure salary, so some of your lower-paying employees may be eligible for overtime pay.
Another thing to consider? Some industries and careers are not covered in the FLSA. For example, independent contractors are generally paid for the task at hand and are not eligible for overtime hours. Other jobs—such as farmworkers, movie theater attendants, railroad and air carrier employees—are exempt from overtime coverage.
How Do You Calculate Overtime Hours?
Figuring out whether your employees are eligible for overtime may not be a one-size-fits-all situation; however, calculating overtime is a lot easier than you think. The FLSA defines the overtime rate as “time and a half,” or 1.5 an employee’s hourly wage. When figuring out your employee’s overtime pay, break out your calculator and multiply their hourly rate by 1.5.
So what does that look like? Break out your calculator, let’s do the math:
- Hourly Rate x 40 = Weekly Wage
- Hourly Rate x 1.5 = Overtime Rate
- Overtime Rate x Number of Overtime Hours = Overtime Wage
- Weekly Wage + Overtime Wage = Total Pay
Clocking in some double time? Here’s what it’d look like:
- Hourly Rate x 40 = Weekly Wage
- Hourly Rate x 2 = Double Time Rate
- Double Time Rate x Number of Double Time Hours = Double Time Wage
- Weekly Wage + Overtime Wage = Total Pay
As for salaried workers? Divide their salary by 52 to get their weekly wage. From there, you can divide the weekly rage by the number of hours worked (in most cases, by 40) to find the hourly rate.
Speaking of paying your employees, the FLSA says any overtime rates must be paid in the same payment period that the wages were earned. Translation? Include any overtime pay in the same period as their regular pay—just like you would process a normal pay period.
3 Simple Rules for Paying Overtime
Let's not sugarcoat things: Overtime pay is not optional for non-exempt employees. If your employees are working overtime, they need to be compensated accordingly. That being said, overtime can cause friction between an employer and their employees. To help ease the relationship, check out these three cardinal rules to navigating overtime payments.
Believe it or not, having employees submit proper timesheets is easier said than done. While some employees might feel guilty for exceeding their standard number of hours, Forbes found 89 percent of employees waste time at work, which can add to an employer’s bottom line.
Encourage your employees to record the number of hours they worked each day. Waiting until Friday to fill out a timesheet can lead to employees recording too little or too much overtime.
Employees should feel empowered to account for their overtime, but you might want to ask them to give you a heads up if they’re about to surpass their 40-hour workweek. Setting expectations and holding each other accountable for submitting accurate hours can help create a positive, efficient work environment.
Don’t Cut Corners
Between promoting employees to exempt managerial roles and averaging all the workweeks in a pay period to determine overtime pay, some companies cut corners to keep overtime wages at bay. Not only can overtime pay shortcuts put your employee’s trust in jeopardy, but it can also result in financial penalties. In a nutshell, stick to the overtime laws and handle overtime on a week by week basis.
Communication is Key
Let’s face it: Many employees will exceed a typical 40-hour work week. After all, busy season is inevitable. But if your employees are submitting too many weeks with overtime hours, it may be indicative of a larger issue. Maybe your employees’ bandwidths are hitting critical mass. Perhaps a project’s workflow isn’t running as smoothly as you’d like. If you’re noticing a pattern in an employee’s timesheets, schedule a meeting to get to the root of the issue. At the end of the day, happy, fulfilled employees are priceless.
Let’s Wrap it Up
Do you want to make your records 100% accurate and make navigating overtime pay a breeze? Sign up for Hourly, which tracks and automatically records your employee’s timecards. Hourly also lets employers create custom rules like enforcing 8 hour days, 30 minute lunches, and setting mandatory start times. That way, you can rest easy knowing you have more control over overtime pay before your employees clock in extra hours.
Have questions? Reach out at (844) 800-2211 to learn more!