Overtime pay—it sounds straightforward until you actually have to figure it out. If you’ve ever found yourself scratching your head about when, how much, or even if you should be paying overtime, you’re definitely not alone. For small business owners especially, navigating overtime rules can feel like a maze. But getting it right is important—not just for compliance, but also for keeping your team happy and motivated.
Let’s simplify overtime pay and help you handle it confidently.
First, the Basics: What Exactly is Overtime Pay?
Overtime pay is extra compensation employees receive for working more than a certain number of hours in a workweek—usually 40 hours. In most cases, overtime is calculated at one-and-a-half times the employee’s regular hourly rate. This rule is set by the Fair Labor Standards Act (FLSA), the federal law that governs pay practices in the U.S.
For example, if your employee makes $20 per hour and works 45 hours in one week, those extra five hours are considered overtime. You’d pay them $30 per hour (time-and-a-half) for those additional hours.
Who’s Eligible for Overtime?
Not everyone qualifies for overtime pay. Generally, there are two types of employees:
- Non-exempt employees: These are hourly workers who must receive overtime pay when working beyond 40 hours a week.
- Exempt employees: Usually salaried employees in professional, administrative, executive, or certain creative roles who earn above a specific salary threshold. These folks don’t typically get overtime pay.
A common misunderstanding is that paying someone a salary automatically exempts them from overtime. Not true! To be exempt, the employee must meet certain job duties and salary requirements defined by the Department of Labor.
Calculating Overtime Pay: Let’s Keep it Simple
Let’s look at a quick example. Say your employee, Sarah, earns $15 per hour. She worked 50 hours last week. Here’s how you’d calculate her pay:
- 40 regular hours × $15/hour = $600
- 10 overtime hours × $22.50/hour (1.5 × $15) = $225
- Total weekly pay: $825
Clear, right?
Common Mistakes to Avoid
Understanding overtime might seem simple at first, but there are some common pitfalls that can cause headaches later:
- Not tracking hours properly: Guessing or estimating hours can lead to underpaying or overpaying overtime. Invest in a reliable time-tracking system to save yourself future stress.
- Misclassifying employees: Labeling someone as exempt when they should be non-exempt is a common—and potentially costly—mistake. Double-check your employees’ roles against the official guidelines.
- Assuming salaried means exempt: Remember, salary alone isn’t enough to avoid overtime obligations. Employees must meet the specific exempt criteria.
Staying Compliant: It Matters
Why fuss over overtime? Because getting it wrong can lead to penalties, fines, and damaged employee relationships. Regularly review your pay practices, and when in doubt, check with HR professionals or legal advisors. This proactive step helps you avoid expensive mistakes and ensures your employees feel respected and valued.
Handling Overtime Costs Strategically
Managing overtime isn’t just about compliance—it’s also about good business sense. If overtime is regularly showing up on your payroll, consider:
- Hiring additional part-time staff to reduce overtime expenses.
- Redistributing workloads evenly across your team.
- Streamlining processes or providing training to improve efficiency.
These steps not only control your payroll budget but also prevent burnout among your team members.
Overtime pay doesn’t have to be intimidating or confusing. With a clear understanding of the rules, a good tracking system, and a bit of planning, you can handle overtime confidently. And your team? They’ll appreciate working for a business owner who values their time—and compensates them fairly for it.