Here’s the key to avoiding overtime pay errors

Federal and state courts hearing overtime pay disputes will always defer to the maxim that the employer must prove employees aren’t subject to the OT they claim is owed.

Unless an employee meets the salaried, “white-collar” exemption (executive, administrative, professional or outside sales), the worker will get the benefit of the doubt from the court hearing the dispute, warns Vicki Lambert, president of the Payroll Adviser.

Lambert urged finance pros to keep this maxim in mind during a Premier Learning webinar, Calculating Overtime: How To Get It Right Every Time. Payroll managers and staffers can help their companies keep OT-earning employees happy, avoid legal hassles and save money by checking that their OT knowledge is on the mark.

Case in point: OT is the No. 1 Fair Labor Standards Act (FLSA) provision that leads to employers needing to pay back wages. OT is about five times costlier than other types of FLSA violations combined, according to the most recent data. Companies paid out nearly $131 million in back wages for OT violations during fiscal year 2023.

Consistency in rounding up and down is crucial

How an employer rounds up or down start and finish times for OT often leads to disputes. Common scenario: A group of employees thinks they’re not getting credited for 15 minute blocks on a regular basis. They assume it’s company policy to shave minutes off their time worked to benefit the company’s bottom line.

“There are three acceptable rounding practices for calculating overtime: five minutes, 10 minutes or quarter-hour,” says Lambert. Ninety-percent of employers use the quarter-hour rule. The military uses the 10-minute rule the most, while the five-minute rule is, in Lambert’s view, “ridiculous, which is why nobody uses it!”

The golden rule: Employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked. But employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.

“Consistency is critical,” says Lambert. That means being consistent in starting and stopping. Any pattern of rounding down will more often than not lead to an employer losing an OT complaint.

A final heads up: The Department of Labor is on track to raise the annual salary threshold for OT eligibility from $35,568 to $55,000 in the coming weeks. The rule would entitle about 3.6 million workers to OT, impacting the retail and manufacturing sectors the most.