3 Things to Consider When Handling Overtime Pay

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3 Things to Consider When Handling Overtime Pay

As is the case with many employment related statutes, exactly how and what your organization must adhere to depends largely on an often complex combination of state and federal law, as well as any employer specific policies. Overtime pay is certainly no exception. Overtime actually functions much like minimum wage in that the employer must pay to the higher standard (either state or federal), i.e. the standard that results in the largest pay out to the employee working overtime hours.

While the government regulates the pay differential itself, there are plenty of other logistical pieces and parts that fall to the individual employer to set as internal policy. While not part of a formal statute, these policies should be spelled out both as a matter of best practice as well as for potential legal protections down the line should something go awry. For a closer look at these policies & practices related to overtime we turn to ERC’s Pay Differential Survey.

1. Notification & Communication

When communicating their need for overtime hours to employees, employers report a wide range of timing. Some employers have consistently busy times of the year, which allows them to provide months of notice and allow employees to plan accordingly. Other companies are only able to give a few days of notice depending on the situation at hand.

The bulk of participants fall somewhere in between, anywhere from 2-7 days, with as much as 20% of the sample simply indicating they let employees know of overtime needs “as soon as possible”.

Clearly for scheduling reasons that impact both the individual employees, as well as their supervisors or other administrators who are in charge of assigning overtime hours, more lead time is always preferred. In their responses many organizations included a caveat that there are occasionally extenuating circumstances that would shorten their usual notification period, but anything under 48 hours’ notice was very rare.

2. The Decision Maker

Especially when time is tight, aside from giving enough notice to employees that overtime will be available (or in some cases is being assigned to them as “mandatory”), deciding who gets first dibs on overtime hours, is the primary challenge faced by employers.

If the overtime is not “mandatory”, many employers will simply ask for volunteers first. But of course, even these volunteers have to have the skill set necessary to perform the work being asked of them, so even these organizations may face some unforeseen scheduling challenges. As a result, many organizations require supervisor approval.

Other considerations that may also involve/require supervisor input, include employee seniority, standards set out by union contracts, or amount of overtime worked recently. This last variable requires some sort of ongoing tracking mechanism, which may take the form of a departmental rotation or other formal set of rules run through the organization’s time & attendance system technology.

3. Holiday Pay

With another holiday season closing in on us, employers should be aware of another subtlety of overtime pay. Holiday pay is regulated under the Fair Labor Standards Act (FLSA), but organizations do not have to count paid hours as hours worked for purposes of determining overtime entitlement, or pay overtime/other premium rates for holidays. However, as a matter of best practice, many employers DO count these hours.

Another fun wrinkle related to holiday pay that may impact how you count your overtime hours, is your holiday party. If the party is “required” or involves actual work related activities and takes place outside of regularly scheduled work hours for a non-exempt employee, not only are you required to pay this employee, but if it puts them over 40 hours in a week (or in some states 8 hours in a day), overtime pay would apply.

Regardless of how an employer decides to count, or not count, holiday hours towards their overtime totals in their internal policy, the key is to spell out the official policy in that trusty employee handbook.

View ERC's Pay Differential Survey Survey Results

This survey reports on common pay differentials from Northeast Ohio employers for hourly employees, including shift differentials, lead premiums, overtime, and on-call pay practices.

View the Results