Overtime Pay, Policies and Rules

Small business owners should know under what circumstances they must pay it.
By Eleena de Lisser With lean staffs, deadline pressures and sudden requests from clients, it is not surprising that a small business owner, from time to time, will have to ask his or her employees to work extra hours. But in the last-minute rush, don't forget this: The federal Fair Labor Standards Act covers more than 80 million American workers and guarantees the right to overtime pay, also called "time and a half", for each hour worked beyond a regular 40-hour week.

Two basic tests can initially tell you whether your employees are entitled to the extra pay. If you answer "yes" to one or both of these questions, you must pay overtime (but you could still be on the hook for this expense even if your business doesn't fit into those categories):

1. Does your business generate at least $500,000 a year in revenue or provide medical or nursing care?
2. Are your employees engaged in interstate commerce, where the goods or services they provide are delivered or performed out of state? (Included in this category is a broad range of jobs, including factory, secretarial, administrative and janitorial work.)

 

Know the law

Educate yourself about the federal labor laws that apply to your industry. The U.S. Department of Labor (DOL) is your primary reference. Also, check with the DOL for your state. Even though your business may be too small under federal guidelines, your employees may still be entitled under state guidelines.
Try: The DOL's Wage and Hour division details the overtime pay requirements according to the law. Your HR person can get online training on compliance from HRcertification.com.

Consult a labor attorney

Federal and state laws are complex. It may not always be readily apparent which types of businesses must comply.
Try: Nolo.com outlines the possible scenarios and has an attorney directory.

Draft an overtime policy

Don't leave this part of your human resources to chance or open yourself to becoming a target of a labor violations lawsuit. Write a set of rules and regulations for your company concerning overtime policy, make them clearly known to your workforce and then stick to it.
Try: Smartbiz.com has a list of issues entrepreneurs must take under consideration when creating a company policy. See Entrepreneur magazine's "Four Overtime Traps to Avoid."

• Don't treat overtime as a benefit. It should only be authorized when market conditions warrant.
• Develop staggered work schedules where weekly shifts for employees begin on different days.
• Discourage the practice of unreported work hours, where an employee comes in early and leaves late. While some people would say that is the sign of a "good employee," it may create a rift within your staff and make your business a target for a labor violation complaint in the future.
• Refrain from cutting special deals or making individual arrangements to avoid paying employees overtime. Under federal law, employees cannot waive their rights to receiving overtime nor can they agree to be paid at a lower wage.