How To Calculate Employee Overtime Costs

Overtime cost calculation can be a stressful process for modern business owners. It is obviously essential to fairly compensate your valuable employees for their hardworking time. However, it can be simultaneously difficult to remain in compliance with local, state, and the federal government. To complicate the mix even more, you may have difficulties administering overtime pay through your company payroll system. Beware that the payroll requirements vary widely depending on if you are compensating hourly or salaried employees. In order to effectively improve your payroll procedures, read on to learn how to calculate employee overtime costs.

Check Federal Regulations

In order to calculate overtime costs, you need to first assess the federal regulations. Federal regulations lay out the minimum payroll requirements for administering overtime payments. These laws are currently set out by the Fair Labor Standards Act (FLSA). This federal act sets overtime regulations, minimum wage, and child labor requirements. Currently, the FLSA requires employees working over forty hours in a workweek must be compensated with pay equal to one and a half times the traditional pay rate. Therefore, employees currently being paid $20 an hour, must be paid a minimum of $30 an hour when working overtime hours.

Create An Overtime Scale

Business owners should calculate an overtime scale in order to effectively calculate employee payroll costs. Once an overtime scale is properly configured, disclose it to all of your employees. This ensures employees know what to expect when surpassing forty hours in a single workweek. Without a pre-disclosed overtime scale, employees may feel they are being underpaid for their efforts even if they are in the career of their dreams. Remember the FLSA requires you to pay employees at least time and a half for their overtime hours. However, this figure represents only a minimum. Some employees may choose to compensate employees heavier for their overtime efforts. For example, you could choose to compensate your valued employees with double-time or with a hourly flat-rate, such as $25 an hour.

Use A Free Overtime Calculator

Using a free overtime calculator is an excellent way to simplify payroll calculation. Even after you assess federal regulations and develop an overtime scale, it can still be incredibly difficult to calculate employee wages. You have multiple employees, each earning different hourly rates, greatly complicating the process. A free overtime calculator allows you to digitally input and compute overtime information. Once you enter online calcultor, they first ask you to set your multiplier. As mentioned earlier, the national minimum is 1.5 times employee’s current hourly rate. However, the multiplier can be customized depending on your specific policy. With your multiplier set, you simply have to input employee’s regular hourly rate, along with their total hours worked. Calculators then return the total amount owed as a result of their regular and overtime hours.

Assess State Laws

Even after assessing the federal wage requirements, you need to assess laws put forth by individual states. Some states set labor laws that surpass the requirements of the federal government to prevent the widening wage gap. Failure to comply with the state regulations can result in steep fines and penalties. Prior to disclosing an overtime policy, be sure to consult with your state’s labor department. At the same time, it may be beneficial to work with an employment attorney to remain updated with changing state laws. In order to calculate overtime costs, be sure to assess state laws implications on your employee payments.

Consider Exempt Employees

Before you begin processing overtime payment, you first need to consider exempt any exempt employees you may be hiring. While employees’ certainly receive the overtime wages, they are not always required. Depending on specific employees’ job title or responsibilities, they may be exempt from receiving overtime payment. The FLSA (Fair Labor Standards Act) dictates which employees are exempt from overtime. Currently, the FLSA acknowledges that administrative, executive, professional, outside sales, and specific computer employees to be exempt from these wages. However, classification is still determined on a case-by-case basis in order to ensure fair standards across organizations.

It can be a complex process for business owners to calculate overtime costs. Luckily, there are effective measures in place to help you through calculation. First, it helps to create a pre-disclosed overtime scale with all of your employees. Then, check federal regulations impacting your overtime decisions. At the same time, it is often advantageous to check municipal and state regulations. In order to alleviate calculation difficulties, consider using a free overtime calculator. Furthermore, consider exempt employees before you implement a static overtime policy. Consider the points mentioned above to learn about how to calculate employee overtime costs.