Should I pay overtime for salaried employees?
We are a new startup with a small team. We are able to offer our employees minimal salary compensation with some benefits. Everyone has been putting in overtime lately in order to really scale our business and make it successful. I want to the team to know we recognize their hard work but I'm not sure the best way to do so. Is compensating them with overtime smart?
I think the best thing to do is to give them a bump in the salary by 5-10% or you can choose to hire a couple people part-time (hourly) to do some of the tasks. You will lose if you try to pay your salary employees overtime and it's not worth it. The other choice is to have them work different hours so the next person can pick up where the previous person left off.
sure if the work is beyond the contracted job. If they are adding to the business, then it should be recognised.
I have another suggestion. You give them extra bonus instead of overtime. Overtime can be misused in the longer time but Extra Bonus is recognition of Extra Efforts.
Prefer paying "Timely Target Completion Award" instead of overtime.
Gift cards - It's compensation that says "Thank you" rather than, "This will happen constantly."
As a rule, salaried employees do not get paid overtime. The rationale is weird, but that is the "law" in most states, if not all. You situation is different as you can have a party to show how much they all mean to you and as a form of celebration. In addition, you can provide everyone some form of money such as gift cards (generic ones so they can use them anywhere), you can do cash as long as it is the same for everyone (same goes for the gift cards).
Congratulations on having a team that is working to make the business successful; that is an AWESOME accomplishment for you. It means your people trust, respect you,and are willing to do whatever it takes to make the business successful. Most entrepreneurs only dream of having that kind of a team.
Mr Daniel, this question should have been asked before you allowed them to work overtime. However, looking at the future, they do need to be compensated because without asking for anything or rather expecting anything, they worked to scale your business. Give them all kinds of recognition. Florence MacDonald
I've been reading all of the fancy answers and most are true. If you ignore all of the legal stuff and go to the human side you will have your answer. The fact that you are asking the question shows that you are concerned about your employees. Thank you. You should never need to worry about the legal if you do what is morally right. I was taught that I should give an honest day's work for an honest day's pay. It is also true that you should give an honest day's pay for an honest day's work.
All of us have 24 hours and we choose how we spend that time. There needs to be some sort of benefit for what we use each hour doing. If you have hired someone with the expectation that they are being paid for 8 hours a day, and you ask them to work more hours, they MUST receive a fair benefit for investing their time in you. A simple handshake and a thank you is not enough benefit for their extra investment. If they don't have a direct benefit from you for working extra hours, you are a self centered egomaniac that doesn't care about people.
I was a salaried employee for a large company. They sent out a memo directing all salaried employees to work 10 additional hours each week. Those extra hours were to replace hourly employees time. They did not offer any extra perks or compensation for that extra investment in time. They said that is was to help the company make more money.........This had a chilling impact on my, and others, moral. Nearly all of us left the company within 6 months....enough time to find a new job.
So, if the extra hours do not directly benefit the employee working them, you should make a change immediately. They SHOULD get a benefit commensurate to their efforts, and not some HOLLOW "perk".
Just my opinion.
Your team needs to be recognized orally but also through your deeds. This can be in form of overtime, bonus, time off, celebration retreats, gift certificates, or a combination. You are the best judge of the mix.
In my opinion, paying over time is not very motivating or inspiring. I would prefer a good team celebration in a restaurant/resort where you acknowledged their extra efforts with a token financial bonus.
How you organize it and how you express your recognition will determine the continued support from your team. By the way, I would use part of the celebration to hear the self-assessment for improvement going forward from the team members.
For the salaried employees to pay overtime in the initial phase of your business is not a valid option. Talk to your employees about for incentive program with dead line to complete the project in time. Once you know that they are working in your interest and company interest. Design some gift cards or a family dinner by thanks giving or Christmas time to show your gratitude towards their hard work.
Most small businesses it works. In case you want to give some monitory benefits get some gift cards keep the receipts for you to claim at the end of financial year.
I think there are three issues/questions.
1. What expectations did the firm set when it hired the people? And what did the employees accept?
2. Legal obligations vs moral obligations
3. Can you afford it in the short term?.
If you offer someone a job and explain what they can expect in terms of remuneration, other benefits, recognition of their contribution, bonuses, shares, profit share and so forth, they know what they are signing up for. They know it's a start-up and they know that their contributions in the early days will enable the business to grow. If you say at the outset that overtime or additional remuneration is not going to be available in the short term because we are growing and we need all the cash we have to fund growth and employees accept that, then that's the end of the discussion.
If you don't set expectations up front, before a person starts their job, you can be in for a bumpy ride.
I don't think that most people joining a start-up expect big salaries or to be paid overtime while the company is trying to grow rapidly. It makes no sense to join a star-up if you expect big dollars and to receive extra compensation until the company is able to afford it.
LEGAL vs MORAL OBLIGATIONS
Employers obviously have to comply with the law for obvious reasons. Then there's the moral oblifation of rewarding people for the extra effort they willingly put in. If you disclose the company's financial position and where it really needs to spend its cash in the short term, then you are engendering commitment and loyalty.
In addition, the owners of the business should demonstrate that they are not taking big salaries.
What will happen to the company's ambitions if it diverts money from growth strategies into additional remuneration. I think employees can answer that question.
You can set up stock options or profit share schemes or bonus schemes to reward contributions down the track. Start-ups who pay people overtime are being financially irresponsible. Employees understand that they can't have their cake and eat it too.
For example, if the business is a start-up accounting firm, employees know that they are not joining KPMG.
Bottom line, the owners of a small outfit should be consulting employees about what they want. If you layout the company's financial position and projections, employees can see that paying overtime doesn't make sense.
For example, if you say that the company wants to allocate $100k to marketing this year and that money is designed to triple the firm's income, but if we use that money for overtime, we will not grow at all, I think people will get it. They didn't join a start-up to make market rate salaries.
At the risk of being sarcastic but if you employed enough staff to do the work as required in the normal time scale of 37.5 hours a week, then you would not have to pay overtime.
You have a choice:
1. You employ sufficient staff to deal with the work load and pay the going rate, then you would not need to pay overtime.
2. If the work load is that great but for a short space of time, then engage temporary staff.
For the short term, to deal with a sudden influx of work, temporary staff are going to be cheaper since you do not have to set them up on the payroll, or if they are working as Limited Company open a Purchase Ledger account for them. The same would apply for a project.
In the case of 1. above, you are actually shooting yourself in the foot since it is expected that overtime be paid at 1.5 X standard rate/salary and therefore an increase in your National Insurance bill as well; in which case if you are expanding, you may as well engage more staff.
The average employee to-day does not want to work over-time and want a life as well- we are in the 21st Centuary, not the "flat cap 19th". If they are that poorly paid that they feel that they have to do overtime, then you will just find they become tired and demotivated and leave. Then you have to start employing a replacement member of staff.
Overall more expense to you. Stop looking at the short term and be proactive, not reactive. Pay your staff overtime or lose them.
I think if you bonus them , then you don't have to increase the salary and they may work harder to reach their goals.
Did you explain in detail what the job entailed in the first place? Did it have an OT curve built in or was it based on a forty hr work week?
You may want to pull your troops together for a briefing if you based it on forty. Company paid lunches on Fridays would certainly help; small incentive bonuses. Half the team 1st & 3Rd week, the other on the 2nd & 4th until you build financial stability. You don't make promises you may not be able to fulfill down the line.
I have bee a salaried/contract employee most of my life. The companies I used to work for back in the 70's and 80's paid overtime for anything over 45 hours a week. I also received a lot of "COMP" time as well. This is usually the best way to show them your appreciation without having to disrupt your payroll system.
Hi Daniel, what a great question.
1st you do need follow the law.
However it sounds like you have a really dedicated team, who are happy to put in the hrs, to make it work.
Recognition is very important, however there are other ways of compensation, for instance.
a) Giving time off in lieu with pay. give them a long weekend. you may want to stagger that by giving some Friday and others Monday.
b) Give them a gift card and a couple of movie tickets. after all it is also the family that has allowed your workers to put in the overtime.
Whatever you do don't forget to write a small thank you note, expressing your thanks and appreciation for the extra time and effort given.
Hope this helps.
Here is what is smart:
-Frequent small bonuses.
Parties- small ones for every imaginable event.
More small bonuses.
If you start paying overtime it quickly turns into something expected which can really bite you in the foot if cash gets tight.
Many considerations but why create a trend you may not be able to continue? If you set up (and meet) the definitions for salaried employees then paying overtime puts you at risk. Also many government rules only apply to companies with a certain number of staff. What we have done in the past is to simply pay bonuses for hard work. It's easy and keeps out of the rules game, plus you don't set an expectation, just show your appreciation when you can. Everyone loves a bonus!
As you said, putting your employees in overtime with reason to scale and make your business successful, that is the best thing to do.
But do you know how much excitement employees always are, to get an extra for what they have done ? I have seen that, how joyful with my employees when they come claiming the overtime to be paid to them, they can even forget or give more attention to the overtime than their salary, they never forget about the overtime. But each business or companies have theirs rules to follow before paying overtime to their employees.
Yes ! You can pay overtime for salaried employees, if you are able to pay them minimal salary compensation with benefits, it is already a big step for you, and you can take it as a way also to motivate your startup small team. What you must know, when you start a new Business, you must have a good startup and a good team, even small, that fine, to keep up and reach success; because many business at startup never made it so far.
MySelf Prashant from DreamSoft4u Private Limited Jaipur, INDIA. Its a nice meeting with you with this topic or query you have. I would like to share my feedback on this question as per my understanding or what I have faced yet.
Few Times back I had research a project and written a Business plan also for it. When I was writing business plan I face this situation to make most of it with resources to keep both end happy and relationship. Here few points O have mention to keep in mind to decide how you can make most of it and I hope it will help you to take decision How / Should I pay Overtime for salaried employee.
Before to start I would like to put some light on job types, In a company or any business we have different kind of profile, Like:
- Business Development
- Plan Execution
Mostly whenever we are in need of Over time - We face challenge with Plan Execution Team. Business Development team work with a fix amount and incentive. Management Is like an Investment or fix running cost of an start-up.
As you have said that you are running an start-up then you should be more focused with proper and planned results.
What I Suggest:
You need to discuss and plan a well defined execution plan for execution team, It will help you to make most of it and to utilize of time with decide goals per day. per week and monthly. Then after if you need to call/require a employee for overtime then you should consult with your management and business development team - why we are in need or why we got lack?
You will know more about why or how you need to manage the need of overtime work. I hope It will help you to manage or keep the things on track with result oriented plan and Yes you need to pay for the employee who is doing good in their job for overtime and the employee who are not able to complete the task in time then you need to call him for overtime without pay OR you can find replacement of that employee.
In Summary we should be more focused about the candidate we are hiring, our time management and why there a need of overtime if our plan of work is good.
Please let me know your feedback or any question if you have in your mind. It will be a pleasure to be in touch with you, Daniel.
Hi Daniel, I believe the question you must answer first is: What are my obligations as an employer? If it is required by your country's labor law to pay overtime premium then its is not only smart to do that, it is what is legal.
In my case, I started my business with freelancers. I pay them only for the number of hours they work on our projects. If the work load is high, they get to work more hours. Because there's no employer-employee relationship, I am not required to provide statutory benefits, OT and holiday rates, night differentials, etc. If the work load is low, I can reduce their working hours. I was able to grow my team to 8 members and by that time, the business gained more stability so I decided to register the business and operate as a company. For the first 6 months, my workers maintained their freelancer status.
After this time, I realized I needed to provide security and better pay arrangements for my workers in order to keep them from looking for a better-paying job. So I hired them as regular workers, which gave them the rights and privileges stipulated in our Labor Laws. At this point, the business has already grown and our sales became more stable, which enabled me to improve their salary and compensation package.
I now have 30+ employees and my pioneer team is still intact. Some of them were already promoted to management positions. They are the most driven members of my team because they saw how our vision slowly unfolds and how our hard work brought us to where we are now. I have learned that communicating well your vision for the company and for your team is what will keep your them willing to put in more effort to make the business successful. Salary and added benefits are secondary.
Outsourcing some of your tasks is also a great way to maximize your budget and manpower. Instead of having your team work more hours, identify which tasks can be delegated to a virtual assistant so your team can focus on more important tasks that require their expertise (ex. taking care of your clients, growing your business). If you think hiring a virtual assistant for data entry, lead generation or research tasks is something you can benefit from, let me know as we may be able to help.