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5 Common Overtime Pay Mistakes You Might Be Making

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Overtime pay is an important part of hourly work. Unfortunately, the concept of overtime can be hard to grasp and many business owners find it difficult to make these payments correctly. Failure to do so can have long-lasting consequences, some of which can cause even a successful business to fold. As such, it’s important that every business owner stays aware of both overtime laws and how overtime payments should be calculated.

Common overtime pay mistakes

Making a mistake on your overtime pay has consequences that reach far beyond upset employees and payroll woes. If you don’t deal with your overtime pay correctly, you could find yourself in breach of both local and federal laws. The fines that you might have to pay could have an extremely negative impact on the future of your business, so staying within the bounds of the law is always a good idea. The best way to avoid these mistakes is to know what to look for, though, so pay attention to the common mistakes listed below.

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Misclassifying employees

One of the most common mistakes made by business owners is employee misclassification. This impacts much more than how much compensation an employee gets for working extra hours, so it’s vital that you know the difference between an employee and a contractor. In most cases, contractors have a greater degree of independence in their work, with less oversight and more control over things like their hours and their dress. Employees, however, are direct representatives of the company and must generally be more compliant with the company’s standards. Independent contractors are typically paid at a rate specified by a contract, so knowing exactly what agreements you’ve made in terms of contractor payment is ideal.

It’s very important to classify employees and contractors correctly. Failure to do so can lead to major penalties, as many companies attempt to escape their responsibilities to their employees by falsely labeling them as contractors. If you do choose to work with independent contractors, ensure that it’s not possible to confuse their status with that of your regular employees. This will help you to stay within many business regulations as far as overtime pay is concerned, and help you to avoid trouble when your taxes come due.

Exempt employees

Not every employee is due extra compensation for working over the full-time allotment of hours. In fact, employees in certain positions are considered exempt from this type of pay. While the exact rules vary, there are a few tests that you can use to determine if an employee meets the exempt criteria. You must first look to see if:

  • the employee makes above a specific salary threshold
  • that payment is made on a salary or fee basis, and
  • the employee is in a specific role that precludes this kind of compensation

 

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Many white collar jobs don’t get this type of pay, so make sure that you’re only paying the right employees.

Not following state laws

Every state has its own laws for how it deals with hours worked beyond the norm. While following the federal laws is always a good idea, business owners are required to make sure that they follow the local rule as well. Knowing the laws of the state in which you operate is the best way to ensure that you are following all of the relevant rules. The good news is that many states have very similar rules to the federal guidelines, but knowing where they differ is the key to making sure that you stay compliant.

Miscalculating overtime for tipped employees

Yes, tipped employees can receive overtime pay. Calculating this pay can be difficult, though, especially if you aren’t paying attention to the rules. While these employees might be paid less than the minimum wage before tips, it’s important to remember that the extra hours of pay have to be compensated based on the state’s minimum wage. This means that a tipped employee working extra hours should often be making significantly more than a business owner might expect.

Miscalculating overtime pay

This simple math error can have huge repercussions for a business. While many businesses owners remember to pay their employees for the extra hours that they have worked, some forget that the payments aren’t meant to be paid at the usual rate. Instead, overtime pay is paid out at 1.5 times the usual rate. If an employee typically makes ten dollars an hour, for example, the employee would make fifteen dollars an hour for every hour of overtime worked. Calculating the pay rate correctly – and making sure that the overtime payment is taxed correctly – is still something that needs to be done by the owner.

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Avoid mistakes by choosing PayTech

Making a mistake on overtime pay rates might seem like a minor problem, but it can lead to major fines. As such, it’s important to ensure that you follow all payroll laws and guidelines. The easiest way to do so is to work with a payroll company like PayTech. Working with a payroll company can make compliance easier and allow you to focus on the areas that will allow your business to grow. When you’re ready to let the professionals help you, make sure to contact PayTech to learn more about packages and pricing options.


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