Unplanned Overtime Costs You Big Time

A minimum wage law sets the lowest hourly rate an employer can pay employees who are covered by the law. The current federal minimum wage is $7.25 per hour. It was enacted July 24, 2009. 29 states and the District of Columbia have a minimum wage above the federal level.

Most state-level minimum wage laws increase incrementally over several years. The upward adjustments generally occur on January 1, but some states don’t stick to the calendar year. It’s critical to know the specifics of your state’s minimum wage law!

In addition, it’s crucial that employers understand that when the state and federal minimum wage laws differ, employers are obligated to pay the minimum wage that is most favorable to the employee. In other words, if your city passes a minimum wage of $14/hr, you can’t pay the federal minimum wage of $7.25.

What about workers who receive tips?

The federal law allows an employer to pay a tipped employee not less than $2.13 an hour in direct wages as long as all three of the following conditions are met:

  1. If $2.13 per hour (or hourly rate above this) plus the tips earned equals at least the federal minimum wage
  2. The employee is allowed to keep all earned tips
  3. The employee customarily receives more than $30 a month in tips

If an employee’s tips combined with their direct wages (at least $2.13/hr) do not equal the federal minimum wage, the employer must make up the difference.

Note that the federal minimum wage doesn’t apply to all young workers and full-time students. Get details on these exceptions on the Department of Labor website.

Minimum Wage and Overtime

Wage and hour laws, especially those involving minimum wage don’t exist in a vacuum. When you violate one law, there is a domino effect.

For example, suppose you use paper timecards and one of your managers isn’t strict about employees recording their time. At the end of the pay period, she gathers the timecards and notices several missed punches.

She’s too busy to ask each employee when they worked, so she estimates the shift times. Then she sends the completed time cards to the payroll manager. When the checks are deposited, a minimum wage non-exempt employee gets a paycheck that’s based on inaccurate hours. The employee had actually worked 43 hours that week but the timecard listed 38.

At this point, you have violated both minimum wage and overtime. When you divide the check total by the time the employee actually worked, the hourly rate had fallen below minimum wage, PLUS, you owe the employee overtime for the 3 overtime hours.

Case Studies

Businesses that violate minimum wage laws routinely face hefty fines. For example, two Connecticut restaurants paid $137,465 in back wages and liquidated damages to workers after the DOL ruled that they violated both minimum wage and overtime.

Off the Clock Work is Illegal

A Florida restaurant had to pay $19,000 in back wages and penalties when they failed to pay servers for their entire shift. The investigation found that the company didn’t compensate for time worked prior to when the servers’ first customers arrived.

The Solution: Automated Time and Attendance

Automated time and attendance assures that your employees are logging their hours and recording breaks and overtime.

With automation in place and multiple punch-in options for your employees, automated time and attendance can help keep you clear of any future trouble regarding minimum wage issues.

The following features protect you from violating minimum wage laws:

  • Biometric time clocks with schedule enforcement
  • Configurable pay rates
  • Tip tracking
  • Meals/breaks prompts


The Fair Labor Standards Act has been around since 1938. Regardless, thousands of employers fail to comply (either knowingly or unknowingly) with the FLSA overtime rules. Some violators are well-known multi-million dollar corporations.

When is overtime pay mandatory?

Employers must pay overtime when hours worked by a non-exempt hourly worker exceed 40 in a defined work week. The overtime pay rate under the Fair Labor Standards Act (FLSA) must be at least time and one-half the employee’s regular rate of pay. No limit is imposed on the number of hours worked in a workweek for those over age 16. Overtime pay is not required for work on weekends, holidays or regular days of rest, unless the employee has exceeded the overtime hours limit in the workweek. State, local, union and industry-specific laws may also apply.

Case Studies

Overtime violations usually result from either misclassifying non-exempt employees or failing to track all employee time.

A Las Vegas plastering company had to pay $137,174 in back wages owed to 156 piece-rate employees who weren’t paid overtime.  

An Ohio-based home health agency was fined $327,848 for multiple violations including not paying overtime when travel time between clients pushed aides over a 40-hour workweek.

The first line of defense against overtime violations is to track all employee time for every shift!

In addition:

  1. Make sure overtime-exempt employees meet FLSA duties test
  2. Make sure independent contractors meet the IRS criteria
  3. Don’t require off-the-clock work
  4. Know overtime laws regarding piece-rate work
  5. Know tip laws
  6. Compensate correctly for “call-in” shifts or “on-call” work
  7. Know meals/breaks laws
  8. Pay employees for training time, putting on uniforms and traveling between job sites throughout the day (traveling from home to the first job site or client is not generally compensable time)

Unplanned Overtime Costs You Big Time

While we’re on the subject of overtime, it’s worth pointing out how unplanned overtime impacts your labor budget. A recent Deloitte study of over 800 U.S. employers revealed an average of 31 unplanned overtime hours each week, per company. Let’s do the math: if your company has an overtime wage of $25, 31 hours a week would add up to a yearly cost of over $40,000.

By limiting unplanned overtime, you not only reduce the risk of a violation but also save your labor budget.

Automated Time and Attendance Works Overtime to Keep You Compliant

Automated time and attendance can help you track employee time and provide alerts and notifications when an employee is approaching overtime status. With automation in place, you have more control over your budget and all the right information for an accurate audit.

Automated time and attendance provides the following tools for overtime compliance:

  • Alerts for overtime hours thresholds
  • Meal/break early punch lockout
  • Overtime calculation by job code
  • Tip reporting
  • Flexible scripting for state or local overtime laws
  • Audit-ready recordkeeping and reporting
  • Mobile location management

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