Calculate Overtime: How to Automate Your Payroll System

Filip Dimkovski - TBR writer
By Filip Dimkovski
Nevena Radulović - Trusted Brand Reviews Editor
Edited by Nevena Radulović

Published November 15, 2022.

A desk featuring two binder files (titled 'Overtime' and 'Salaries'), along with a calculator, papers featuring charts, as well as a magnifying glass.

When businesses are overloaded with work but don't have the time or resources to acquire new talent, existing employees might need to work more than usual. This phenomenon is known as overtime, referring to the hours the employee has worked outside their usual schedule. Unfortunately, business owners sometimes don't adequately compensate employees for working overtime, primarily because it can be difficult to calculate since it exceeds the total amount of hours worked per week.

Fortunately, there are now specific solutions helping business owners calculate overtime and adequately pay employees who worked more than usual. Calculating overtime manually can be quite difficult, as one small error in calculations might lead to an incorrect payment amount later on. This is one of the benefits of automated vs. manual payroll, as it minimizes the chance of human error and makes such calculations much easier. Now, let's see how you can automate your payroll system to properly calculate overtime.

» Employee compensation: See how it differs from employee benefits.

Automatically Calculate Overtime With Payroll Software

Automated payroll software offer many benefits over HR team or finance department manual processing. As long as you provide the software with the correct data, you'll know the calculations are accurate. Let's see how you can calculate overtime with payroll software.

» Unsure how to set up online payroll? Follow our tips for first-time HR managers.

Input Correct Timesheet Data

When using payroll software, you need to ensure the timesheet data is properly input. This means employees must clock in and out at the right time every day. Of course, there will be exceptions such as sick days, vacation days, or personal days, but these can be easily accounted for if you use an attendance tracking system that integrates with your payroll software.

Most sophisticated payroll solutions offer these features by default, so employees and managers only need to enter the correct overtime hours.

» Which employees have access to timesheet data for payroll? Discover internal controls to prevent payroll and personnel fraud.

Confirm Overtime Laws in the Relevant Territory

Every country and state has different overtime laws you need to take into account when calculating employee salaries. For example, in the United States, employees must be paid 50% more than their hourly rate if they work more than 40 hours in a week, while overtime hours in France are paid with a 25% bonus.

On the other hand, some countries don't have any overtime laws, so employees will be paid at the default rate unless otherwise specified in the contract. Since wage regulations differ from country to country, it's important to check the relevant laws to avoid any legal issues later on. Moreover, laws can be changed down the road regarding minimum salary for overtime exemption, so staying up to date with the relevant jurisdiction is crucial.

Contact Customer Service

If you're struggling when using automated payroll software to calculate overtime, then it might be a good idea to contact the customer support team of the solution you're using. Since calculating overtime is one of the essential features of payroll software, the customer support team will be willing to help.

Consequences of Withholding Overtime

There are multiple consequences a business could face if it fails to properly pay overtime. These include:

Decreased Productivity & Morale

The most obvious downside of withholding overtime is that it will almost certainly lead to decreased productivity and morale in the workplace. If employees feel like they're being treated unfairly, they'll be less likely to go above and beyond in their work. This will inevitably have a negative impact on the bottom line of the business.

» Does workplace culture influence employee productivity and morale? Discover how to improve your workplace culture.

Fines & Legal Fees

Just like businesses are legally obligated to run payroll, they're required by law to adequately compensate employees for overtime. Withholding overtime pay might result in your business receiving hefty fines from a federal body. Depending on the relevant jurisdiction, the fine for withholding overtime from the Department of Labor can be quite high. Moreover, if the employee decides to pursue the case in court for criminal behavior, they'll also have to cover the legal fees, which can be quite costly.

Reputational Damage

Another consequence of not paying overtime is reputational damage. In today's day and age, word spreads quickly, and one disgruntled employee can cause a lot of problems. If the story goes viral, it could even lead to a PR nightmare that will be very difficult to recover from.

Conclusion

Paying employees for overtime hours can be quite a complex process, as one small error could lead to multiple problems down the road. However, as long as you use an automated payroll solution and stay up to date with the relevant overtime laws, you should be able to properly pay overtime without any issues.

» Looking to automate your payroll system? Read TBR's reviews to find the perfect payroll solution.

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