Four tips for accurate overtime calculations
Calculating overtime pay for nonexempt workers may be more complicated than you think.
Many business owners rely on paying one-and-a-half times the normal hourly rate for any excess hours worked over a 40-hour workweek. But the calculations are often trickier than that.
When staff members work overtime, confirming that pay is calculated and recorded accurately is vital — especially when errors can lead to serious consequences. You risk legal claims by current or former employees for underpayments, and you don’t want to inadvertently pay more than you should.
Following the fine print of the Fair Labor and Standards Act (FLSA) carefully can help ensure compliance. Some key provisions are easy to misconstrue or overlook when you apply overtime payments to payroll. Payroll staff can also watch for these four issues to review regarding overtime pay:
1. Review types of pay
To properly calculate overtime, you need to understand the kinds of compensation that factor into your calculations.
For example, when adding supplemental pay, such as a bonus program to encourage better performance, you would need to include it in blended overtime calculations. This type of bonus doesn’t receive the same treatment as holiday or discretionary spot bonuses, which are excluded from the regular pay rate. Therefore, you would need to factor it into overtime calculations.
Additionally, if someone earned both the bonus and had overtime in the same week, you would need to pay an overtime premium on that bonus.
2. Review individual weeks
It can be tempting to combine workweek calculations for efficiency; however, to avoid errors, it’s essential to look at the specific workweek the overtime was earned instead of the entire pay period.
Pay periods are typically two weeks, and lumping all the hours worked and the overtime in that single configuration can be challenging. Too often, it leads to adverse effects for the employer (overpayment) or for the employee (underpayment).
For greater accuracy, list any overtime hours in the individual weeks in which those hours were earned.
3. Review the budget
Consider how bonus pay and overtime might impact your bottom line when building out bonus programs. Depending on how you structure your bonuses, you may have to account for overtime pay in addition to the bonus pay.
Knowing these impacts ahead of time can help you avoid any surprises that overtime can have on your bottom line.
4. Review your process
Understanding key concerns is the starting point for accurate overtime calculations — implementation is the next hurdle. Some employers simplify overtime calculations by using the highest overtime rate when paying variable rates for a variety of work categories, including being on call, weekend shifts or other supplemental pay opportunities.
While this makes it easier to comply with the FLSA, it can also lead to your business paying more than necessary. Yet handling calculations manually and taking into account varying pay rates can be an error-prone and burdensome task for your back office.
One option to achieve efficient, precise results without the risks involved in taking a manual approach is to work with a payroll provider that uses software.
Options like iSolved can effectively support calculations and give you peace of mind about whether you’re paying the correct amount. And even if you’re not currently offering supplemental pay and have straightforward calculations, having access to a third-party solution makes it easier to implement supplemental opportunities like bonus programs in the future.
Support for your payroll challenges
Ensuring accurate payroll is critical, but calculations can be a lengthy, complex process that drains your back-office resources. Wipfli is ready to help your company with impactful, tailored solutions that can help make tracking time, calculating overtime and processing payroll easier.
Click here to learn more about what services Wipfli can provide you to help you maximize your internal resources. Please contact us if you would like additional information about how we can help you approach pay with greater accuracy and efficiency.
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