Payroll Play 6/10: How to monitor and calculate overtime hours
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Payroll Play 6/10: How to monitor and calculate overtime hours

Imagine you're a small business owner with non-exempt employees who occasionally work overtime. You want to ensure fair compensation for their extra efforts while staying compliant with overtime pay laws.

But you haven’t yet established an overtime pay policy. So there are a lot of questions:

When does overtime pay start? Is it legal to not pay overtime? How does overtime pay change in relation to salary?

I don't think anyone wants to spend their precious free time triple-checking overtime records. That's why I hope this quick guide can help you navigate the overtime journey from start to finish.


- An employee works beyond a set number of hours per week or day.

- An employee works on weekends or holidays [not applicable for the USA].

- An employee works outside of the scheduled shift, for example, they have taken someone's shift.


Understand overtime pay rules

Familiarize yourself with local overtime pay laws, including:

  • Is overtime pay mandatory? When it's mandatory?
  • What employees are entitled to overtime pay (exempt vs. non-exempt employees, hourly vs. salaried employees, contractors vs. full-time workers, etc.)
  • What are the applicable rates and multipliers?
  • What if you didn’t provide overtime pay?
  • Is it legal to pay “comp time” instead of overtime?
  • What overtime information should be stated in an employee contract?
  • What are the legally allowed working hours?
  • What is the legal limit of overtime hours?

Check if your state has specific overtime pay laws, as these may differ from federal regulations.

Make sure you budget accurately for overtime

When you're setting up bonus programs, think about how overtime pay might affect things too. Don't get caught off guard by unexpected overtime costs.

Choose the proper tool

  • Consider using payroll software that covers both overtime tracking and pay calculation.
  • If you already have software, then consider integrations with overtime tracking software.
  • If opting for manual methods, ensure you have reliable tools in place:

Educate employees

  • Clearly communicate your company's overtime pay policy to all employees.
  • Train them on how to accurately record their hours worked, including any overtime.

Implement clear procedures

  • Establish straightforward procedures for recording and approving overtime hours.
  • Ensure all employees understand how to request and report overtime accurately.

Regularly review records

  • Regularly review time records to identify any discrepancies or potential issues.
  • Address any inaccuracies promptly to maintain compliance and fairness.

Expected Results

  • Enhanced compliance and accurate compensation.
  • Time savings for employers.
  • Improved employee satisfaction through clear policies, accurate tracking, and fair compensation.

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