Are Your Payroll Practices Be Shortchanging Employees on Overtime?
One of the most common wage and hour mistakes employers make has nothing to do with whether they intend to pay employees fairly. It stems from a simple misunderstanding about how overtime works under the Fair Labor Standards Act (FLSA).
Many organizations pay employees every two weeks. Because of that, it's easy to assume overtime is also determined over a two-week period. It isn't.
Under the FLSA, overtime must be calculated based on an employee's individual workweek, regardless of how often the employee is paid.
How does this work in practice?
Take this example:
Week 1: An employee works 45 hours.
Week 2: The same employee works 35 hours.
Over the two-week pay period, the employee worked a total of 80 hours. Some employers mistakenly assume that because the employee averaged 40 hours per week, no overtime is owed.
However, the employee worked five hours over 40 during Week 1, meaning those five hours generally qualify for overtime pay.
Hours cannot be averaged across workweeks to avoid paying overtime.
Why do employers get this wrong?
In many cases, it comes down to systems and assumptions.
Payroll schedules are often biweekly or semi-monthly, and employers naturally think in terms of pay periods rather than workweeks. Sometimes payroll software settings go unchecked for years, or long-standing practices continue simply because "that's how we've always done it."
Unfortunately, a practice that has existed for years can still create compliance concerns.
Questions employers should consider
If your organization has non-exempt employees, it may be worth asking:
Do we clearly define our workweek for overtime purposes?
Are overtime calculations being reviewed at the workweek level?
Have our payroll practices been audited to ensure they align with FLSA requirements?
Are managers trained on how overtime rules actually work?
These questions can be especially important for organizations with shift workers, fluctuating schedules, or seasonal spikes in workload.
Why this matters for affiliate partners
Business coaches, consultants, and other trusted advisors frequently help clients improve operational efficiency and workforce planning. Compensation practices often don't come up until there's a problem.
Encouraging clients to periodically review their wage and hour practices can help identify issues early, before they turn into employee complaints, audits, or more significant financial exposure.
What Employers Should Remember
Most compliance issues don't arise because employers are trying to avoid paying employees appropriately. More often, they happen because a common assumption goes unchallenged for too long.
Overtime rules can be nuanced, and small misunderstandings can create larger problems over time. A proactive review of payroll and HR practices can provide peace of mind and help ensure that the systems supporting your workforce are also protecting your business.
This is one of the many areas the HR MRI Assessment® can help uncover, identifying critical, major, and administrative issues so employers can address concerns before they become costly distractions.