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Off The Clock

How to avoid costly mistakes in calculating and paying overtime

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This story appears in the February 2000 issue of Entrepreneur. Subscribe »

The basic concept of overtime sounds pretty simple: Employees who work more than a certain number of hours get paid at a higher rate for the extra hours put in. The actual practice is far more complex, however, with a lot of gray areas to consider. And making a mistake could hurt later in back pay and penalties if you get caught, says Steve Milner, a managing partner with Squar Milner, an accounting firm in Newport Beach, California.

Milner says the most common mistake employers make when it comes to overtime is in how they classify employees. Essentially, employees are either "exempt," which means overtime rules don't apply, or they're "unexempt," which means overtime rules do apply. Milner says administrative workers in smaller businesses are often misclassified as "exempt" when, because they lack supervisory duties, they should be "nonexempt."

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