Managing Overtime Costs Without Sacrificing Productivity

Managing overtime costs presents a constant balancing act for business owners. While overtime often signals strong demand for your products or services, excessive overtime costs can strain your cash flow and complicate payroll management. Understanding the current rules and implementing effective oversight strategies can help you maintain control of these expenses.

Understanding Federal Overtime Requirements

Under the Fair Labor Standards Act, nonexempt hourly employees must receive overtime pay for hours worked beyond 40 in a workweek. It’s important to note that a workweek doesn’t have to align with the calendar week. Your business might define it as Wednesday through Tuesday, for example.

Current regulations require that most employees earn at least $684 per week ($35,568 annually) to qualify as exempt from overtime. Many business owners mistakenly believe that job titles determine overtime eligibility, but even some salaried employees qualify for overtime compensation.

Employees earning $107,432 or more annually are typically exempt from overtime if they receive at least $684 per week and perform at least one executive, administrative, or professional duty as defined by the Department of Labor. Those paid below this threshold generally qualify for overtime.

Calculating Overtime Costs Correctly

Overtime wages must equal at least 1.5 times an employee’s regular rate of pay. Businesses can apply nondiscretionary bonuses and incentive payments toward up to 10% of the standard salary threshold for exempt employees, provided these payments are made quarterly.

State regulations add another layer of complexity. When federal and state rules differ, employees are entitled to compensation at the higher of the two pay rates.

Practical Overtime Management Strategies

Most businesses aim to control overtime for budget reasons, but there are additional factors to consider. Employees working excessive hours may be more prone to errors and face increased safety risks. While some employees appreciate the extra income, others may eventually leave if they’re required to work overtime too frequently.

Start by examining what drives overtime in your business. If employees are consistently stretched too thin, it may be time to hire additional staff. Similarly, unrealistic production timelines may need to be adjusted.

Cross-training provides another effective solution. Overtime often becomes necessary when only one employee can perform certain tasks. Training multiple employees on critical functions reduces dependence on key personnel.

Technology offers valuable tools for managing overtime. Software can help you track overtime hours and costs by location or department, making it easier to identify areas where expenses exceed normal ranges. Automation can reduce manual tasks, giving employees more time to complete their work during regular hours. Additionally, scheduling software helps ensure staff work only when needed.

Staying Current with Regulations

The overtime rules changed briefly in 2024 under the previous administration, but a federal court vacated those changes in November. While the Department of Labor technically has those rules under appeal, significant changes appear unlikely under the current administration. That said, overtime regulations can evolve in other ways.

Effectively managing overtime requires a combination of regulatory knowledge, strategic planning, and the right tools and resources. If you need guidance on controlling overtime costs or ensuring compliance with current regulations, our team can help you develop strategies tailored to your business needs. Reach out to CJG today.