You're a business owner who takes care of your own books and you're confused about overtime pay. That's understandable, as many owners try to avoid this situation as much as possible. However, you should still understand the basics of overtime pay in case it ever becomes a problem.

Understanding When Overtime Is Necessary

Workers who are under the age of 16 are limited by the number of hours they can work, but anyone over that age is not limited in the number of hours he can work in a week. As a result, they could work 50 or even 60 hours a week, which is defined as a 168 hour or seven-day period. 

However, if he works more than 40 hours in a week, overtime is usually required. If any of your employees fall under this banner for even one pay week, those extra hours could count as overtime pay and must be paid as such. That said, it's possible that your employees may be exempt from overtime. 

Exemptions That May Apply

Overtime exemptions are actually more common than you would think. Many professionals are exempt from earning overtime wage, which is something that accountants, bookkeepers, and business owners need to fully understand before paying. Employees that are exempt from overtime pay include:

  • Sales or retail employees who receive more than half their income from commissions
  • Computer professionals paid at least $27.63 per hour
  • Employees who sign a legally binding contract denying overtime pay
  • Salaried employees
  • Drivers, loaders, and mechanics employed by a motor carrier
  • Farm workers on very small family farms
  • Automobile dealership workers, including salesmen
  • People employed on a seasonal or temporary basis
  • Elderly companions
  • Elevator workers in the country
  • Firefighters in small departments
  • Wreath makers

This incomplete list should give you a good start in identifying whether or not your employees must be given overtime pay. If they are exempt, you can stop here. However, if they are not exempt, you need to understand how to calculate overtime pay.

Calculating Overtime Pay

Overtime pay is set at 1.5 times the normal hourly pay wage. Calculating overtime pay requires following a relatively simple math equation:

  • Subtract the total hours worked by 40 to get the overtime hours
  • Multiple the hourly wage by 1.5 to get overtime hourly pay
  • Multiply these two numbers to get your total overtime pay
  • Calculate normal hour pay by multiplying 40 by the hourly wage
  • Add overtime hour pay to normal pay for the total pay for the week

Here's an example. Let's say your $10/hour employee worked 46 hours. Following the above formula gives you six overtime hours at $15/hour. Their normal 40-hour pay ($400) is then supplemented by the overtime pay ($90) for the weekly total ($490).

Now that you better understand overtime pay, you can more carefully balance your books at the end of every pay period. It can also help you schedule more efficiently to avoid this problem. However, if it can't be avoided, make sure you keep track of it in your books or hire somebody to do them for you (such as someone from Joseph Hanlon, CPA).