It's important to accurately track overtime hours because failing to do so can result in legal disputes and financial penalties. By tracking overtime, you can ensure that your employees are fairly compensated. It also means you'll be in full compliance with Fair Labor Standards Act requirements.
Furthermore, keeping tabs on
overtime pay means you can better monitor employee productivity levels and identify areas for improvement when making data-driven decisions. You'll also be able to see trends and notice patterns
in your employees' habits, allowing you to fine-tune roles and assign tasks more appropriately.
Let's take a look at how overtime works and what you can do to improve your processes.
When is overtime pay required?
Overtime pay is necessary when an employee works more hours than required in a week or day, takes on tasks during weekends or holidays, or performs duties outside their scheduled shift.
What are the most popular rates for calculating overtime pay?
The most common rates for calculating overtime pay include time and a half, double time and fluctuating workweeks. Time and a half is when employees receive 1.5 times their regular pay rate for any additional overtime hours they work.
Similarly, double time refers to when employees are paid twice their regular rate for extra hours they work. On the other hand, with fluctuating workweeks, employees who have varying weekly hours receive overtime in the form of 0.5 times their regular pay rate for each overtime hour they work.
Common mistakes to avoid when tracking overtime
A common pitfall when tracking overtime is failing to account for hours worked outside scheduled shifts, including on weekends or holidays. Engaging in inaccurate recordkeeping can lead to disputes and penalties, which has the potential to harm your business's reputation. Another mistake is misclassifying employees as exempt when they should be nonexempt, which leads to exempt workers ending up being inaccurately eligible for overtime pay.
What the FLSA says about overtime pay
The FLSA provides guidance regarding overtime pay. It clarifies the fact that exempt employees must receive a fixed salary no matter how many hours they work. In other words, they are exempt from overtime pay because they hold positions that are considered managerial, which allots far more responsibility and authority when it comes to making decisions.
The fixed salary that exempt employees receive cannot be reduced based on the quality or quantity of work completed. Additionally, they must earn no less than $684 per week, and the job duties they perform must be on par with executive, administrative or professional responsibilities.
On the other hand, nonexempt employees are compensated on an hourly basis. As such, they are eligible for overtime pay in instances when they work beyond their regular set of hours. Also, the pay distributed to nonexempt employees may be reduced in response to the quality or quantity of work. Ultimately, nonexempt employees must be paid no less than the federal minimum wage as set by the FLSA.
How to effectively track overtime
Let's take a look at three of the most effective ways to document overtime hours:
- Spreadsheets: Businesses can track overtime with the help of spreadsheets. Create a template that lists each employee's name followed by the days and hours they worked. Time-tracking spreadsheets should contain columns to make it easy to calculate the total hours every employee worked each week, including any overtime. It's important to regularly compare overtime hours against the legal threshold to ensure compliance.
- Overtime apps: For a more mobile solution, businesses can utilize overtime apps, which serve as a convenient time management tool. Apps like these offer features that let you track GPS and mileage data. That way, you can confirm employees' locations and validate the need for reimbursement. Not only that, but overtime apps are equipped with automatic clock-in and clock-out functioning. Overtime apps can grant you access to reporting capabilities while integrating smoothly with your preexisting payroll system. When deciding which overtime app to use, make sure you pick one that aligns with the needs of your business.Employees should also be properly trained on how to use the app, particularly when it comes to clocking in and out. Make sure you have someone who regularly reviews and approves the hours of each employee.
- AI assistance: Another alternative is using artificial intelligence-backed overtime bots. These tools can automatically establish thresholds and calculate overtime based on the parameters you set.
If you opt for an automated approach to tracking overtime, make sure the method you choose has the power to identify the moment an employee works beyond the legal threshold for overtime pay. This will help you reduce the chances of making errors.
Once you choose an overtime tracking system, integrate it into your existing payroll and accounting systems. This will make it a lot easier to understand labor costs and make informed decisions about employee scheduling.
From there, you'll feel more equipped to manage team resources and delegate workloads while simultaneously prioritizing everyone's well-being. In turn, you can prevent increasing rates of employee burnout, higher levels of worker dissatisfaction and the deterioration of your company's workplace culture.
Last but not least, by tracking overtime you can keep an eye on what could otherwise become one of your most expensive business-related costs.
This is just a summary of a complex series of rules and regulations. Consult a qualified expert to make sure you are in full compliance at your business.