Teaching Your Kids About The Business World

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How Overtime Laws Work for Employers

Business Articles

Overtime is often an essential way to manage busy periods for your business. If you have a large order to complete in a short period or you have developed a backlog in one of your key processes, overtime is a quick, simple way to get more people to complete the job, and many of your workers will appreciate the opportunity to earn more cash. That aside, when paying overtime for your workers, it's important to make sure you pay your people in line with the law. Find out what you need to do here.

Understand & Obey State Laws

Many states within the US have their own laws that apply to overtime payments. For example, Alaskan employers in certain industries with more than four employees must pay their workers an enhanced overtime rate on a daily and/or weekly basis. As such, you should check if there is local legislation that applies in your state.

That aside, federal laws about overtime apply in every part of the United States. As such, every company's overtime policy and processes must comply with the federal Fair Labor Standards Act or FLSA.

Summary of FLSA rules about overtime

The FLSA doesn't limit the amount of hours a worker can work in a day or a week, so there are no restrictions on shift length for employers. However, when your workers reach a certain weekly threshold, the FLSA says that you must pay enhanced rates.

According to the FLSA, a regular working week includes up to 40 working hours. Above this limit, employers must pay their workers at one and a half times their regular hourly rate.

Unlike some state laws, the FLSA does not apply overtime rules to working days. As such, in theory, an employee could work all 24 hours in a day, and you still wouldn't need to pay overtime rates, unless those hours took the worker over the 40-hour working week. Similarly, the FLSA does not say that employers must pay premium rates for hours worked at the weekend or on public holidays.

Calculating regular rates

To comply with the FLSA rules, you must pay overtime based on the worker's regular rate. Under federal regulations, you must calculate the regular rate for a worker on an hourly rate at a rate per hour that includes the salary, any bonuses and any commission payments the worker would normally receive.

Here's an example.

An employee earns $10 per hour. He worked 45 hours in his working week and receives a $100 bonus for sales he makes.

You should multiply the 45 hours by the usual hourly rate of $10, which equals $450. You must then add the bonus of $100, bringing the total to $550. You must then divide the $550 by 45 to calculate the regular rate, which in this case is $12.22. As such, the overtime rate is $12.22 x 1.5 – or $18.33.

As such, this worker should receive $10 for the first 40 hours worked, $100 commission, and $18.33 for the five overtime hours worked.

Similar calculations apply for people who are pieceworkers, receive a daily or weekly rate or receive a weekly or monthly salary. You must also pay overtime on the payday that covers the period the employee worked or as soon as possible after this if it takes time to calculate the money you owe.

Possible penalties

If you fail to meet FLSA requirements, you may face various penalties or sanctions. The FLSA may tell you to change your working practices, and you will almost certainly have to pay any back wages due. If the FLSA believes you have deliberately violated the law, you could face prosecution and a fine. Ongoing convictions could even result in imprisonment.

As such, it's critical that your payroll tools and processes are robust enough to cope with overtime payments, particularly when it comes to calculating the regular rate for your employees. If you have a lot of workers, it's a good idea to invest in payroll software that does all the work for you. Talk to a local software provider for more details.

While some states don't have specific laws that apply to overtime payments, employers across the United States must comply with the Fair Labor Standards Act. Talk to your accountant, an attorney, or companies like SmartLinx Solutions LLC for more information.


4 April 2016