Business Consulting / Common Overtime Mistakes To Avoid

Common Overtime Mistakes To Avoid

There are many ways to run afoul of overtime laws. Below are some of the most common — review them to ensure that you’re always in compliance.

Misclassifying exempt and nonexempt employees

Under the Fair Labor Standards Act, exempt employees do not have to be paid overtime when they work more than 40 hours in a workweek, but most of them must receive a salary of at least $684 per week. When classifying employees as exempt, be sure to review the U.S. Department of Labor’s guidelines.

If an employee does not meet the “exempt” threshold, then they are nonexempt and must receive overtime pay for hours worked over 40 in a workweek.

You might need to consider state law as well. A few states — such as California and New York — have their own overtime exemption laws.

Assuming all salaried employees are exempt

If a salaried employee does not meet the FLSA or state criteria for “exempt” status, then they are nonexempt and must receive overtime pay for overtime hours worked.

Improper application of standard overtime rules

Under the FLSA’s standard overtime rule, employers must pay overtime hours (i.e., work hours exceeding 40 in a workweek) at 1.5 times the employee’s regular rate of pay.

Many states have standard overtime rules, which may or may not differ from the FLSA’s. When both FLSA and state overtime laws apply, employers must use the law that favors the employee the most.     

Providing compensatory, or comp, time in lieu of overtime pay

The FLSA forbids private sector employers from using comp time/paid time off as a substitute for overtime pay. This practice is also illegal in most states. Where comp time is forbidden, the employee must receive overtime wages for overtime hours worked. 

Inaccurate calculation of “regular rate of pay”

Overtime rate is based on the employee’s regular rate of pay, so it’s crucial that the regular rate of pay is correct. The FLSA defines regular rate of pay as “all remuneration for employment paid to, or on behalf of, the employee.” In addition, the FLSA excludes certain types of payments from the regular rate of pay calculation, including unused paid leave, discretionary bonuses, payments made in the form of gifts, and business expense reimbursements. If a payment is not excluded, then you must include it in the regular rate of pay calculation.

Not paying unauthorized overtime

Under the FLSA, “Work not requested but suffered or permitted is work time.” Basically, if you know or have reason to believe the work was done, then you must pay for the time worked — whether or not you authorized it. This includes unauthorized overtime worked by on-site and remote employees.

Missing other applicable aspects of overtime pay

Depending on the nature, structure and location of your business, you may need to consider other overtime rules, such as:

  • Weighted average overtime for employees who work multiple jobs at different rates.
  • Overtime premiums for employees who work outside normal business hours, such as on Sundays or holidays.
  • Fluctuating workweek method, which allows employers to calculate overtime pay at 0.5 (instead of 1.5) times the regular rate of pay. 

Be sure to work with a professional to ensure you follow all the rules.

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