Overtime costs can easily throw a company’s cash flow into disarray. While sometimes overtime is unavoidable, many businesses try to avoid having to pay overtime. However, many employers make big mistakes in trying to control overtime costs and end up violating state and federal wage and hour regulations. When these violations are discovered, employers can end up having to pay substantial fines, back wages, and interest.
Here are the three biggest mistakes employers make when it comes to overtime.
Under federal overtime rules there are two types of employees regular employees and exempt employees. Employers do not have to pay exempt employees overtime. However, many businesses are under the false impression that the rules mean that salaried employees are exempt from overtime. In order to get around overtime rules they claim they are paying everyone salaries, even if those salaries equal their hourly wages.
But, federal law has an elaborate series of tests to determine if someone is exempt from overtime or not. Simply switching someone from an hourly employee to a salaried employee is not enough to make them exempt from overtime.
It is critical that employers properly classify workers to avoid later having to issue back pay with interest and pay hefty fines to regulators.
It can be tempting to ask employees to quickly complete a few simple tasks before clocking-in or after clocking-out. However, having employees work off the clock, even for just a few minutes, is illegal. It can subject a company to expensive lawsuits and even lead to your business having to shut down.
Regulators look at these types of practices as wage theft and illegal tax avoidance. Many companies have faced class actions over these tactics.
It is not worth saving money on overtime and risking the future of your company by allowing employees to work off the clock.
Federal overtime rules apply to the workweek. If an employee works more than 40 hours in a workweek, they are entitled to overtime pay. However, some employers mistakenly believe that if some of the hours were worked in different pay periods, no overtime pay is mandated.
The federal overtime rules apply to a standard workweek of seven days. For most employers, that means from Sunday to Saturday. If an employee works more than 40 hours in those seven days he or she is due overtime for any time over 40 hours.
It does not matter if the pay period ends during the middle of the week. The employee would still be owed overtime. However, in cases where a pay period ends in the middle of a workweek, the overtime would not be due until the next paycheck.
If an employee works 35 hours from Sunday to Thursday and 20 hours from Thursday to Saturday, the employee will be owed 15 hours of overtime pay. If the company pay period ended on Thursday, the employee would get a check for 35 hours. His or her next paycheck would include five hours of regular pay from the week and 15 hours of overtime pay, plus any additional time earned the rest of the pay period.
Make sure you are properly paying overtime and classifying your employees if you want to avoid running into compliance issues with state and federal wage and hour regulators.