How to Create an Overtime Policy

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Create an Overtime Policy
Create an Overtime Policy

How to Create an Overtime Policy. Having an overtime policy in place is essential to the smooth running of a company. Many workers may expect overtime pay when they don't qualify for it, while others may need approval to work overtime. Establishing a clear policy from the beginning will help both sides avoid misunderstandings and problems.

Create an Overtime Policy

Differentiate between exempt and non-exempt employees. Non-exempt employees must be paid overtime, while exempt employees do not. Examples of workers who won't receive overtime include executives, professionals (doctors, lawyers), office and administrative workers, as well as outside or independent salespersons.

Establish early on how and when overtime is acceptable. Make it clear if it's something only a manager can permit or if employees are allowed to make their own choices based on workload and time of the year. Make sure limitations and rules are also in place, so there is no abuse of overtime.

Obey the law by learning what state laws require you to do as an employer when handling overtime. This includes reviewing the current policy on amount of overtime allowed, how much to pay and how to calculate it based on employees' duties and contracts. These laws vary from state to state.

Read the Fair Labor Standards Act to find out which employees are eligible to declare overtime and which ones are exempt of such regulations (see Resources below). The Act also specifies how much you should pay for overtime (usually one and a half times the normal hourly rate), what happens with overtime hours worked during holidays or weekends and who has the right to approve overtime.

Create a written policy outlining everything related to overtime. Make the policy all-inclusive, but keep it as short and simple as possible. Try not to include more than two exceptions to the rules, and make sure all employees receive a copy and are encouraged to read it.

Tips & Warnings

  • You don't need any particular paperwork to set up an overtime policy. By simply stating in writing how the system works and making sure all employees get a copy, you are already protected under the law from false claims.
  • Create a policy that is easy to read and free of legal terms that might be misunderstood by those not familiar with laws and regulations.

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