Overwhelmed by Overtime? Here's How You Handle It the Legal Way
When it comes to hitting your payroll goals, overtime is often the cause of that heavy, sinking feeling in the pit of your stomach.
We know -- you don’t wanna pay it. Nobody does. And so, naturally, you do all you can to avoid it. You schedule employees up to the 35-hour-a-week mark to avoid pushing too close to that 40-hour limit. You require that shift changes be approved so that you can check how it will affect the schedules of every employee. You may even go so far as to automatically clock your employees out for breaks, or to include a policy in your employee handbook stating that “unapproved overtime will not be paid,” or something to that effect.
It’s important to do whatever you can to stay on top of payroll costs for your office, of course. Still, some methods of limiting overtime are “more equal” -- and, frankly, more lawful -- than others. Here’s why:
Overtime Payments Are Required by Law
It’s a good idea to do your best to limit your employees’ hours in order to keep a healthy buffer between them and that fortieth hour of work. Here at CEDR, we also advise employers to include a policy in their employee handbooks stating that “all overtime must be approved before it can be worked.” Though such a policy will not limit your responsibility to pay overtime once it has been worked, it can give you a way to address employees who appear to be abusing your office’s overtime policy.
Ultimately, however, that’s about all you can do to legally limit overtime in your office.
The law that mandates overtime payments by employers is called the Fair Labor Standards Act (FLSA), and it was passed in 1938 in order to protect employees from unfair working conditions. Along with mandating overtime payments for hours worked beyond 40 in a week, the FLSA also set the overtime payment rate at at least 1.5-times an employee’s “regular rate of pay” and included provisions requiring that employers maintain records of hours worked.
Because of the standards set by the FLSA, it’s extremely risky to clock your employees out automatically while they are still performing the duties of their jobs as doing so could easily result in claims of unpaid wages by employees or former employees. Also as a result of that piece of legislation, it’s actually illegal to deny your employees overtime payments if they did, in fact, work overtime during the course of a workweek.
Additionally, (fair warning) including a policy in your employee handbook about denying overtime payments to employees is equivalent to laying out a road map for any employee or attorney who decides to come after your office for alleged wage violations.
Getting Overtime Payments Right
If you’re starting to worry that your office might have a policy in its employee handbook that goes against the requirements of the FLSA, you’re not alone (this is exactly why CEDR offers free, confidential handbook evaluations to office managers like you!).
And, even if you’re confident that your policies are all ship-shape, you’ll still want to know that there are no surprises lurking in the books if the Department of Labor or IRS ever comes-a-knocking. And that means knowing, when you do pay overtime, that you’re doing it right.
“Regular” Rate of Pay
So, with hourly employees, calculating the overtime rate is pretty simple, right? If you pay a dental assistant $20 per hour and she works 41 hours, that's 40 hours times $20, plus one hour times $30. Easy, isn’t it?
Well, the truthful answer is “maybe not so much.”
If the employee in question is ONLY paid an hourly rate (or is paid ONLY on a salary basis), then that calculation works fine. But if the employee also receives bonuses and/or commissions during a week in which they worked overtime hours, or they receive more than one rate of pay, things get a little bit more complicated.
In order to avoid boring you to death, we won’t go into the details of those calculations here (if you’re really interested in learning more about them and seeing a few examples, you can do so here). But, suffice it to say that commissions and outcome-based bonuses are considered part of that “regular rate of pay” and should be included in your overtime calculations, right along with that basic salary or hourly figure.
As with policies stating that your office “will not pay overtime” for whatever reason, a policy that says “all bonuses are discretionary” does not magically turn an outcome-based bonus into one that can be excluded from overtime calculations. And any unpaid wages resulting from such a policy could be enough to legitimize a legal case against your business.
Overtime Mistakes are Extremely Common
Of the more-than $226 million in back wages collected from employers by the Department of Labor in 2018, three-quarters of those collections came in the form of back payments for unpaid overtime. And, over the 13 years CEDR has been helping dental and medical offices maintain legal compliance, we’ve found that a majority of healthcare professionals are getting this piece of the puzzle wrong in one way or another.
But you can’t fix something you don’t know is broken. And knowing the right way to do things is the first step toward protecting your practice from legal claims down the road.
If none of the information in this post comes as news to you, you’re probably part of the lucky minority who has been implementing overtime correctly from the start. If not, don’t worry -- you can get help from the HR nerds at CEDR whenever you need it!
If you’d like to learn more about wage and hour compliance, check out the new CEDR Guide to Employee Classification and Wage Compliance here.
If you’d like to have your employee handbook evaluated for free, start the review process by clicking here!