At Timesheets.com, we often get calls from customers who want help setting up “custom” overtime rules. We’ve heard the gamut of creative “overtime policies”. While having multiple pay rates is fine for different types of work, employers must understand that federal laws govern overtime.
A company’s overtime policies are really quite simple because they’re based on federal and state laws. Overtime pay is one and a half times the regular pay rate for all hours and fractions of an hour worked over 40 in one week. (In California, overtime includes any hours worked over 8 in one day. You can find more California overtime policies in our post on double time.) This is why you can’t make up your own overtime policies. State and local governments already made them.
Common Employer-Created Overtime Policies
Averaging over two weeks
You cannot average hours over a two week pay period. In most cases, this will eliminate or diminish the overtime. For this reason, you must calculate overtime weekly.
Subtracting lunches not taken
Some companies routinely deduct an employee’s lunch time. This is fine to do, in general, unless employees take less time. When this happens, they should make adjustments to the lunch deduction.
Customized overtime policies
Having your employees agree to customized overtime policies does not trump federal and state labor laws. Even a signed agreement won’t hold up in court. The laws exist to protect employees from exactly this kind of thing.
Paying Overtime On Future Paychecks
Overtime must be paid on the regular payday for which the overtime was worked. It cannot be paid on some paycheck down the road. It’s not always easy for employers to pay the higher price for work but if employers let employees work over 40 hours, they have to pay them on time.
Substituting Overtime for Comp Time
Probably the most common thing small business owners do to avoid paying overtime is “transfer” excess hours to time off. Converting overtime to comp time is prohibited for private businesses.
Employees in certain kinds of positions are exempt from overtime rules. Check the Department of Labor website for details.
Memorizing overtime rules is time consuming and not an option for most business owners. That’s why employers use a service like Timesheets.com. In the software, you can select which overtime setting you’d like to use, based on your state, and the system does all the calculations for you.