What is overtime pay? Here’s what every small business needs to know 

If you’re an employer, grasping the intricacies of overtime pay laws is crucial to ensuring fair compensation and compliance with regulations. 

This resource guide delves into the essentials of overtime pay, offering insights that every business owner should be well-versed in.

What is overtime pay?

Overtime wages, commonly known as time and a half, refer to 1.5 times an employee’s regular pay rate for each hour worked beyond 40 hours in a workweek. For instance, if an employee’s hourly rate is $20, their overtime would be $30.

To qualify for overtime pay, an employee must work more than 40 hours per week, meeting specific criteria outlined later in this guide.

Federal overtime laws

Federal overtime laws, governed by the Fair Labor Standards Act (FLSA), mandate that qualifying individuals receive extra compensation for additional work. 

The FLSA aims to protect the rights of nonexempt employees, and adherence to its guidelines is crucial to avoid violations.

Distinguishing between exempt and nonexempt employees is paramount. Nonexempt employees are entitled to overtime pay, while exempt employees may be exempt based on criteria such as salary, job responsibilities, and duties.

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State overtime laws

In addition to federal laws, some states impose overtime regulations, often building upon the federal baseline.

 These state laws may include variations in rules, such as additional compensation for working beyond a certain number of hours in a workday.

To navigate these state-specific nuances, employers should be aware of and adhere to federal and state overtime laws. State Departments of Labor are valuable resources for obtaining comprehensive information.

Overtime rates

Unless state-specific laws dictate otherwise, nonexempt employees are compensated at the federal overtime rate (time and a half). The FLSA does not limit the hours a person aged 16 or older can work as long as fair compensation is provided.

Employers may offer time and a half for holiday shifts, even if the total weekly hours are below 40. However, federal overtime laws do not mandate additional pay for working holidays.

Calculating overtime pay

Calculating overtime involves:

• Determining the regular rate of pay.
• Applying the overtime rate (1.5 times).
• Computing both normal and overtime pay separately. 

These calculations are essential for ensuring accurate compensation for nonexempt employees.

Keeping overtime Records

FLSA mandates stringent timekeeping requirements, necessitating employers to maintain accurate payroll records for each employee. 

These records should include personal information, hours worked each day, total hours worked weekly, hourly pay rate, and overtime earning

Need help?

Not a problem!

Fingercheck can be your ally in overtime complexities by providing tailored payroll, time tracking, and HR solutions for small businesses. As we explore the nuances of overtime regulations in our comprehensive guide, remember that Fingercheck stands ready to streamline your workforce management whenever needed!

Fingercheck and any related entities do not offer tax, accounting, or legal advice. This content is designed for informational purposes only and should not be considered a source of tax, legal, or accounting advice. It is recommended that you consult your tax, legal, and accounting advisors before undertaking any related activities or transactions.