We get calls all the time from customers who want help setting up the overtime rules inside our software. They explain that they would like to customize the defaults to suit their company’s policies. I have heard a gamut of creative solutions for calculating overtime. While having secondary or even tertiary pay rates is great employee incentive, employers must understand that there are federal laws governing overtime pay. Overtime policies cannot be tailored from company to company.
The rules are actually quite simple. Overtime is calculated as one and a half times the regular pay rate for all hours and fractions of an hour worked over 40 in one week. In California overtime is also added to any hours worked over 8 in one day. You can find more California overtime policies in the post When is an Employee Paid Double Time?
Here are the most common points that confuse small business owners :
- You cannot average hours over a two week pay period. In most cases this will eliminate or diminish the overtime. Overtime is calculated weekly. There is no exception.
- If you routinely deduct a full time employee’s lunch, but they are too busy to take the full lunch, they need to be compensated for the extra time that they work.
- Having your employees agree to customized overtime policies does not trump the federal labor laws.
- Overtime hours must be paid on the regular payday for which the overtime was worked, and not on some paycheck down the road.
Employees in certain kinds of positions are exempt from overtime rules which can be found here on the Department of Labor website.
Memorizing the rules can be time consuming for a business owner. That’s why you should let Timesheets.com do the hard work for you. All you have to do is select which overtime setting you’d like to use, based on your state, and the system does all the calculations for you.