the complete guide to calculating overtime pay

Last Updated On October 31, 2019 / Written By Michelle Jaco

The Complete Guide to Calculating Overtime Pay

When dealing with OT pay, care must be taken because if you don’t comply with the labor laws, you run the risk of being fined or facing lawsuits. You also need to abide by these rules in order to treat your workers fairly and respectfully.

Introduction

Restaurant owners often have to deal with large amounts of overtime pay for their hourly wage employees. According to Gallup’s report about overtime, an average full-time worker in the U.S. log about an extra 50 hours in overtime per week. That means nearly 10 hours of overtime per employee per week.

Overtime is extra hours worked by an employee during a week, and this time is paid at a higher rate than the usual wages. The Fair Labor Standards Act establishes the rate of overtime pay in the U.S. According to the FLSA, overtime pay is greater or equal than one and half times the regular wage.

In your restaurant, there can be many reasons for high overtime levels. It may be the restaurant’s business is doing very well, but there aren’t enough employees to work all of the available shifts. Another reason may be that employees are trying to work more OT hours to earn more money on their paycheck.

Whatever the reason is, in order to keep your business and profits up, you need to be vigilant about where your money is being spent. One way to keep overtime in check and monitor your employees’ productivity is by tracking their hours worked through the use of time clocks.

In dealing with overtime pay, care must be taken because if you don’t comply with labor laws and regulations regarding overtime, you may be greatly fined or potentially face lawsuits. You need to abide by these rules not only to avoid the penalties but also to treat your workers fairly and respectfully.

Calculating Worked Hours + OT Hours

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The overtime pay will depend on the state in which you operate your restaurant. So, it is advised to check with your local labor laws, but one thing is for sure, you have to pay more than the usual pay for overtime but never less.

If your workers are paid a fixed salary or hourly wages, you can easily calculate their minimum overtime pay using the below formula

Overtime Pay = Usual pay x 1.5 x Overtime hours

So, if your employee works on $10 per hour and he/she worked 45 hours during the week. Their overtime pay for that week will be as follows

Overtime Pay = $10 x 1.5 x 5 = $75

For hourly employees, you will need to know exactly how many hours they worked that week, which could be problematic if you don’t have an effective way to track their hours.

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How Time Tracking Benefits Employers

The above formula only works for simple calculations but in the restaurant business, there are many factors that make overtime calculation rather difficult for owners and managers. You will need detailed reports and logs to work out the correct overtime pay of your employees.

That is where time tracking comes in handy. Using an effective tool will help you monitor your employees and track their actual hours worked, eliminating the time theft epidemic that is unfortunately and commonly seen within hourly workers.

This tool can generate reports and logs from which you can extract useful data, which will let you, make accurate calculations about overtime pay.

The following are some of the common matters pertaining to time tracking for overtime and how you should address them.

Total Worked Hours

One of the biggest challenges in the restaurant industry is having detailed and transparent reports on the hours worked by employees. Inaccuracy and errors in these reports can turn out to be costly mistakes for the restaurant owner. If you don’t have accurate timesheets and working hours logs, you won’t be able to calculate exact overtime pay, and will have to resort to the honor system of having to ask your employees how much overtime they accrued.

Time clocks can track your employees' work and activities and generate useful reports. It will help you define overtime pay and hourly rates because you would be able to monitor when your employees clock in and out of work.

Moreover, you would be able to monitor their efficiency and productivity during the working hours with the help of this tool.

Data & Privacy

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Some employees may feel as if their privacy is being threatened once timekeeping software is implemented in the restaurant. This is typically due to the misunderstanding that the company wants to keep a watchful eye on all of its employees at all times - which is not the case.

It is vital to explain that time clocks are simply used to increases fairness and transparency in the workplace.

Fairness can be experienced on both ends, employees, and management because employees will be properly compensated for the exact time worked, so no one is being shortchanged for time worked or overpaying for the time that was not worked.

Make your employees understand that your intention is only to make effective decisions about the overtime pay and working hours by analyzing their reports.

Be open and honest with them so they can trust you and your management team. This will definitely alleviate concerns about this technology.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

Auditing

In the event that your restaurant must undergo an audit, it’s always a good idea to be prepared for any possibility that may arise.

In order to pass these inspections, time tracking tools will help you by securing all the data about your activities, statements, reports, and digital logs back timesheets. You will always have access to this information and can present it to auditors whenever such audits happen.



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