Federal overtime law sounds simple. Non-exempt employees get at least time and a half for hours over 40 in a workweek. Most owners know that part. The expensive mistakes are in the details.
Here are seven we see come up again and again. They're based on the Fair Labor Standards Act and the Department of Labor's fact sheets, which we've linked at the end. Your state may add more on top.
1. Averaging hours across two weeks
Someone works 50 hours one week and 30 the next. That's 80 hours over a two-week pay period, so no overtime, right?
Wrong. Federal law looks at each workweek by itself, and the Labor Department is direct about it: averaging hours over two or more weeks isn't permitted. That person gets 10 hours of overtime for the first week, however the pay period works.
2. Moving the workweek around
Your workweek is a fixed period of 168 hours: seven 24-hour days in a row. It can start on any day and at any hour, but you pick it and keep it. You can't shift it to dodge overtime in a particular week.
Check that your payroll system and your schedule agree on when it starts. A surprising number of businesses have never set this on purpose.
3. Leaving bonuses out of the regular rate
Overtime is based on the regular rate, which isn't always the same as someone's hourly wage. Things like shift differentials and many non-discretionary bonuses count. That includes a bonus someone was promised for hitting a target or for perfect attendance.
Say someone earns $20 an hour, works 50 hours, and gets a $100 attendance bonus for that week:
- Straight-time pay: 50 × $20 + $100 = $1,100
- Regular rate: $1,100 ÷ 50 = $22
- Overtime premium: 10 hours × $22 × 0.5 = $110
- Total: $1,210
Pay it the simple way, at $20 × 1.5 for the overtime hours, and you'd come up $10 short. It sounds small until you multiply it across a team and a few years. Try it in our overtime calculator.
4. Not paying for time that really is work
The law covers time you "suffer or permit" someone to work. It doesn't matter if you didn't ask for it. If you know someone stays late to finish closing, or you should know, it counts. Common examples:
- Setting up before clocking in
- Finishing up after clocking out
- Putting on required gear that takes real time, in some situations
- Answering work messages at home
- Required meetings and training
Training only goes unpaid if it meets four tests: it's outside normal hours, it's voluntary, it's not job related, and no other work gets done during it. Most required training fails that.
Travel between job sites during the workday is generally work time. A normal commute from home to work isn't.
5. Docking breaks that weren't taken
Many payroll systems automatically take out 30 minutes for lunch. If someone works through lunch, or eats at the register while serving customers, that's work time, and you owe for it.
Short breaks count too. Rest periods of about 20 minutes or less are paid working time under federal rules. A real meal period, usually 30 minutes or more, can be unpaid, but only if the person is completely free from work. More on break rules.
6. Giving comp time instead of overtime
"Work 10 extra hours this week and take 10 hours off next week." It's a friendly offer, and most private employers can't make it. Comp time in place of overtime pay is generally available only to public employers. A private employer can sometimes rearrange hours within the same workweek, so nobody goes over 40. Once they've gone over, you owe the pay.
7. Calling someone exempt because they're on salary
Paying someone a salary doesn't make them exempt. To skip overtime, someone generally has to pass a salary test and a duties test. Calling an assistant manager exempt because they have a title and a fixed paycheck doesn't work if they mostly run the register and stock shelves.
The same goes for calling someone an independent contractor to avoid the rules. If you control when and how they work, they might well be an employee.
Salary thresholds can change, and some states set higher ones. Check the current numbers before you rely on an exemption.
What about weekends and holidays?
Federal law doesn't require extra pay just because it's a Saturday, a Sunday or a holiday. You might choose to pay it, and some contracts or states might require it. Likewise, daily overtime isn't a federal rule, but California and a few other states have it. California, for example, has overtime after 8 hours in a day.
Keep records that will answer the question
If an employee claims they worked unpaid hours and you've got no records, you're in a weak position. You need to keep payroll records for at least three years, and time cards and schedules for at least two. Any timekeeping method is fine, as long as it's complete and accurate.
How software helps
A clock and a schedule that talk to each other catch most of this early. In PinkLinq, you set your workweek start and overtime threshold once. Hours split into regular and overtime by week. A "Heading into overtime" list shows who'll cross the line based on what they've worked plus what's scheduled, so you can decide while you still have options. If your pay period is twice a month, we'd suggest a weekly or biweekly schedule for exact weekly overtime, because those periods cut across workweeks.
Sources
- Fact Sheet #23: Overtime Pay Requirements, US Department of Labor
- Fact Sheet #22: Hours Worked, US Department of Labor
- Fact Sheet #21: Recordkeeping, US Department of Labor
This is general information, not legal advice. Talk to an employment lawyer about your situation, especially if you think you've underpaid someone.