Employers can make a lot of mistakes with overtime calculations if they’re not careful and this is bad because it can lead to lawsuits. Some employers make some of these mistakes intentionally too and basically test their luck with labor lawsuits.
Some of those mistakes include: avoiding overtime payments by classifying employees incorrectly as contractors, paying employees a salary when they should be working by the hour, “paying” private employees comp-time in lieu of overtime, etc.
Overtime Calculations Mistakes
Mistake 1: Calculate Overtime Biweekly Instead of Weekly
The Department of Labor defined the workweek to be 7 days and not 14 days. This means that overtime calculations are based on any time over 40 hours in a 7 day workweek and not time over 80.
“Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. ” -from DOL
Mistake 2: Change an Employee’s Timezone During a Pay Period
Changing the timezone in the middle of a pay period while using an online time tracking system would change the employee’s workweek. That would affect overtime calculations and that’s why you shouldn’t do it. The Department of Labor requires that employers stick to the same workweek from week to week. This is because it can short employees their overtime.
How the overtime gets lost:
Let’s say the employee works in the Eastern timezone and the workweek goes from Sunday at midnight through Saturday at 11:59pm. If the employee worked 42 hours by Saturday at 11pm, he should get 2 hours of overtime for this workweek. Now, let’s say the employee moves to Oregon and the employer changes his timezone to Pacific but, without thinking, he does it before closing out payroll.
Here’s what happens: The workweek gets reset so that the workweek is over at 8:59 Eastern time, instead of 11:59 Eastern time. So those two hours of what should have been overtime, are now pushed into the next week. Those hours will be paid as 2 regular hours, and the employee won’t get overtime.
Mistake 3: Don’t count travel time towards overtime calculations
Employees who travel from job site to job site during a normal day’s work, need to be paid for that time. Some employers think employees aren’t working when they’re driving and so they don’t need to pay employees for that time. However, this is not the case. Employees need to be paid no matter what type of job they are doing.
Employees do not need to be paid when they leave the last job site, under most circumstances. This is commuting time. When they are traveling, though, during the normal workday they do need to be paid at least minimum wage. For full details, read our article on travel time.
Mistake 4: Pay an employee from the payroll of two companies
Sometimes an employer pays an employee from the payroll of two companies even though one employer owns both companies. This is usually intentional to avoid overtime payments. It seems like a loophole because splitting the time between companies makes it look like the employee didn’t work overtime. But it’s not a loophole. It’s just bad practice.
Occasionally, though, employers just don’t realize what they’re doing. Lots of business owners own more than one company. Some employees may work for both. Understandably, these employees would be on the payroll of each company, in order to keep the books separate. But what everyone needs to understand is that the actual human employer needs to pay overtime. This is true even if the employee works over 40 hours between the two companies.
Mistake 5: Try to Calculate Overtime By Hand
Overtime calculations are complicated and for this reason it’s almost impossible to do it right by hand. You’d have to consider the workweek and so the time of day is important. Double time has some complex conditions and is a pain for employers in states that require it. You’d have to add up the hours each day and over the week to see where the double time falls. And probably the most nightmarish of all is managing workweeks that get split by the pay period. If you run monthly or bi-monthly payroll, the last day of the pay period might fall in the middle of the week. You need to cross reference this with the previous pay period each time you run payroll. If you’re calculating overtime by hand, you might want to choose a different pay schedule.
Avoid Overtime Calculation Mistakes
Use a reputable online time tracking system and let a computer do the work. Online time tracking eliminates these problems because it calculates overtime automatically and correctly. You can set up a lower rate of pay for travel time, which the system will automatically count towards overtime. It won’t let you change the timezone in the middle of a pay period so workweeks don’t get thrown off. And the pay schedule will never be an issue.