Overtime pay is a legal requirement in most countries, including the United States, under federal and state labour laws. These laws help to ensure that employees are compensated fairly for their work and that employers are held accountable for complying with labour standards.
Under the Fair Labor Standards Act (FLSA), employers in the United States are required to pay eligible employees overtime pay at a rate of at least one and a half times their regular rate of pay for all hours worked over 40 hours in a workweek.
Calculating overtime perhaps sounds simple, but it is rather time-consuming and can be difficult to understand. Failure to pay overtime can lead employers to unwanted consequences of lawsuits and legal issues. It can further damage the reputation of the employer and the company, also the employees will feel unpaid or treated unfairly.
Here are the 3 common mistakes employers make which should be avoided while calculating overtime pay:
1. Incorrectly Calculating the Overtime Rate:
One of the common mistakes is incorrectly calculating the overtime rate. When an employee works over his or her overtime threshold, overtime pay is usually calculated at 1.5 times their regular hourly rate. This overtime rate can differ from state to state.
Many employers, however, fail to include bonuses, commissions, or other types of compensation when calculating overtime rates. Employers need to calculate overtime pay using the right rate and include all types of compensation to avoid making this error. As part of compliance with federal and state overtime pay laws, employers should ensure they are using the correct overtime pay calculation method.
2. Not Counting All Hours Worked:
Another common mistake employers make when calculating overtime pay is failing to count all hours worked. A worker’s overtime pay is typically determined by how many hours they worked over a specified threshold, usually forty hours per week. It includes time spent engaging in work-related activities, such as training, travel, or meetings outside of work hours.
It is important to ensure that all hours worked are accurately recorded and counted, including time worked remotely. Employers need to have clear policies in place regarding timekeeping and work schedules to ensure accurate recordkeeping.
3. Offering compensatory time instead of overtime:
The third mistake that employers make is by offering compensatory time, which is also known as banking hours. It permits employees to take time off instead of getting paid for overtime. Employers do this to avoid having to pay overtime payments. However, employees lose out on thousands of dollars in just compensation. Furthermore, banking hours are not applicable if the employee left the company or was fired.
You should avoid offering comp time to your employees in lieu of overtime payment. Many states prohibit doing so as it violates labour laws and can land you in legal trouble.
Final words
These are the 3 overtime calculation mistakes that employers need to keep in mind to avoid legal troubles. If you want to learn more about overtime paying calculations then check out Compliance Prime’s website.
