Off The Clock How to avoid costly mistakes in calculating and paying overtime

The basic concept of overtime sounds pretty simple: Employeeswho work more than a certain number of hours get paid at a higherrate for the extra hours put in. The actual practice is far morecomplex, however, with a lot of gray areas to consider. And makinga mistake could hurt later in back pay and penalties if you getcaught, says Steve Milner, a managing partner with Squar Milner, anaccounting firm in Newport Beach, California.

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

Another problem occurs when an employee's responsibilitiesshift. "In the entrepreneurial environment, change happensquickly," Milner says. You might change someone's jobdescription and not bother to adjust his or her pay structure--andfind out after a complaint has been filed that the new job shouldhave been classified differently. "Whenever you make a changein the way employees do their jobs, think about whether they'restill classified correctly," Milner advises.

Another situation to be wary of is when employees take time offfor personal reasons that they later make up; if makeup hoursaren't worked until the next workweek, you may find yourselflegally obligated to pay overtime rates for those hours.

Overtime rules vary by state, so check with your state'sdepartment of labor or local labor attorneys and accountants fordetails. For example, in most states, overtime must be paid afteran employee works more than 40 hours in a week; in California,however, it must be paid when the employee exceeds eight hours inone day and/or 40 hours in one week.

Once you understand the rules, develop your internal policiesand classify your employees. Then, before you take any finalaction, run your plan by a labor attorney or an accountantknowledgeable on this topic to confirm that it will stand up undera challenge. Milner says the small investment of an hour or two ofprofessional fees can save you a tremendous amount of grief lateron.

Jacquelyn Lynn left the corporate world more than 13 yearsago and has been writing about business and management from herhome office in Winter Park, Florida, ever since.

Contact Source

Squar Milner, (949) 222-2999