There's plenty to do in any dental, optometry, or other healthcare practice when it comes to payroll. One particularly complicated factor is calculating overtime
Overtime pay can sometimes be difficult to navigate when you take into account various laws and protocols.
Some of these hidden elements of overtime pay can potentially cost your practice hundreds of thousands of dollars if you don't get it right the first time. This is due in part to some laws and exceptions to overtime pay being tricky or easy to miss.
This article will help simplify the complicated subject of overtime work, highlighting what overtime rates are and distinguishing the difference between regular pay rates and overtime compensation. Read on to learn more about overtime laws and to discover how to properly pay hours of overtime to your employees.
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What Is Overtime?
Overtime pay is a higher rate of pay that employees receive for hours that are worked in excess of a standard workweek. In most cases, a standard workweek, or full-time work, is defined as 40 hours, but some states follow different guidelines, such as California’s overtime rules mentioned below. For the protection of your veterinary, chiropractic, dental, or other medical practice, it is essential that you educate yourself on all federal laws and any exemptions when it comes to overtime payments.
How Much Is Overtime Pay?
The Fair Labor Standards Act (FLSA) requires that employees receive overtime pay based on the following overtime requirements:
• Overtime will be paid at 1.5 times the employee's regular rate of pay for overtime hours worked over 40 hours a week.
California Overtime Rules
While the above is the norm, there are variables from state to state. For example, California has a unique set of rules when it comes to your employee's overtime pay.
• Each employee is paid for anything over 40 hours of regular wages, but they are also paid daily overtime for working more than eight hours in a work day.
• They're also paid for the first eight hours of work performed on the seventh consecutive work day in a single workweek.
It's crucial to know the general rules and regulations for your state. Not only does this keep your practice compliant, but it can potentially save you a lot of money.
Is Overtime Pay Required by the Law?
There are exempt and non-exempt employees. The term "exempt" refers to employees who do not qualify for overtime protections, while "non-exempt" refers to employees who are eligible for overtime. There are certain types of jobs that are explicitly exempt from FLSA guidelines, such as minimum wage requirements and child labor laws.
What About Double Time?
Similar to overtime, double time is an hourly rate of twice the employee's regular rate of pay. In California, employees qualify for double-time pay under the following conditions:
• When they work more than 12 hours in a single workday, or
• When they work more than 8 hours on their seventh consecutive day of work.
Who Is Eligible for Overtime Pay?
As part of the FLSA, employees must be paid an overtime rate for all hours beyond their regular job duties that occur during a 40-hour workweek, unless they're exempt.
If I Don't Pay Overtime, What Is the Risk?
Not paying overtime is one of the easiest ways to put your practice at risk of employment claims. The average employment claim for unpaid wages that include overtime aren't just costly but are also eligible for the Secretary of Labor to bring suit for back wages, as well as an equal amount in liquidated damages.
Simple steps like automating your timekeeping can help prevent this. More possible penalties for non-compliance with paying overtime include:
• Wage claims with the Division of Labor Standards Enforcement
• Employees file lawsuits to recover the lost wages
• Claims for a waiting time penalty, which is a penalty imposed on employers who don't pay overtime
All of these outcomes are costly for your practice.
How Do I Calculate Overtime Hours?
There are six ways to calculate overtime depending on the type of employment contract.
1. Hourly Employees
If your employees are paid by the hour, overtime is one-half times their hourly rate. For this example, this is an overtime calculation for employees whose rates of pay are $10 an hour:
$10 x 1.5 = $15 overtime rate
2. Salaried Employees
Overtime is calculated differently for eligible salaried employees paid on a weekly or monthly basis.
Employees paid on a weekly basis are paid overtime at one-half times the rate of their calculated hourly pay, which is their weekly salary divided by the number of hours in their typical work week. Here's what that would look like for an employee who's paid $1,000 a week for a 40-hour workweek:
$1,000 / 40 = $25 regular hourly rate
$25 x 1.5 = $37.5 overtime rate
For monthly employees, calculate overtime by first breaking it down by week. For an employee paid $4,000 a month, the calculation would look like this:
$4,000 x 12 = $48,000 yearly salary
$48,000 / 52 = $923 weekly salary
$923 / 40 = $23 regular hourly rate
$23 x 1.5 = $34.5 overtime rate
If your employee is paid annually, calculate their overtime by first calculating their weekly pay. Here's what it looks like for an employee paid $67,000 a year:
$67,000 / 52 = $1,288 weekly salary
$1,288 / 40 = $32.20 hourly salary
$32.20 x 1.5 = $48.30 overtime pay
3. Employees on a Fixed Workweek (Less Than 40 Hours)
Even if an employee typically works less than 40 hours a week, you are not required to pay them overtime until they exceed a 40-hour workweek. Here's an example calculation for an employee paid $10 an hour who typically works a 30-hour workweek:
$10 x 1.5 = $15 overtime pay
40-hour workweek: $10 x 40 = $400
45-hour workweek: ($10 x 40) + ($15 x 5) = $475
4. Employees on a Fluctuating Workweek
In some cases, salaried employees might not always work a 40-hour workweek. In this case, you'll have to calculate their hourly rate for each individual week they're owed overtime. The U.S. Department of Labor explains this as such:
Under the fluctuating workweek method, overtime pay is based on the average hourly rate produced by dividing the employee's fixed salary and any non-excludable additional pay (e.g., commissions, bonuses, or hazard pay) by the number of hours actually worked in a specific workweek.
Here's how to calculate an employee who was paid $1,000 for a 50-hour workweek:
$1,000 / 40 = $25 regular hourly rate
$25 x 1.5 = $37.5 overtime rate
5. Paying Employees for Piece-Rate Work
In this type of calculation, employers have to satisfy the minimum wage for an employee. Some employees get paid for piece work, such as a mechanic who's paid for each vehicle repaired. In this case, if that employee has worked a 40-hour workweek, they must make the equivalent of minimum wage for that week.
For example, a mechanic in Seattle is typically paid $100 per vehicle repaired. The minimum wage in Seattle is $15 an hour.
Here's her calculated pay for fixing five cars in a 30-hour workweek:
$100 x 5 = $500
Here's her calculated pay for fixing seven cars in a 40-hour workweek:
$15 x 40 = $600
6. Weighted Overtime Pay
Weighted overtime is also known as "blended" overtime. It is typically used in situations where an employee performs various types of jobs at one organization and gets paid different rates for each, such as a hygienist who might also work at the front desk.
In this case, employers have two options:
• Calculate weighted overtime when an employee works at two or more different pay rates.
• Default to the higher rate of pay for overtime, which is ultimately more costly.
Here's how to calculate overtime for a person paid $30 an hour as a hygienist and $15 an hour as an administrator working the front desk. For this particular example, he's worked 30 hours as a hygienist and 30 hours as an administrator.
First, multiply the hours worked in each position by the typical pay rate:
$30 x 30 = $900
$15 x 30 = $450
Total compensation: $1,350
Then, divide the total compensation by the number of hours worked to get your weighted average:
$1,350 / 60 = $22.5
Multiple your weighted average by 1.5:
$22.5 x 1.5 = $33.7 overtime pay
If you're confused, don't worry. This is why HR for Health calculates this for our payroll clients.
Setting Overtime Expectations
Efficiently managing overtime means having a clear grasp of where extra money is being funneled. This allows you to know whether the amount of overtime being paid is worth the expense or if an employee's hours need to be adjusted. Think proactively by tracking time, cross-training, and vocalizing overtime expectations.
How HR for Health Can Help
Knowing the details behind overtime rates and calculations means saving money. While the rules are constantly changing, having a good grasp of the basics can make a world of difference. HR for Health’s all-in-one software automatically calculates overtime based on your state's rules.
If you have additional questions, please schedule an HR consultation with us by booking time here or calling us at (888) 316-9284.