Payroll may feel routine, but changes in staffing, schedules, bonuses, and job responsibilities can quickly create compliance issues.

Overtime is one area employers should review regularly. An employee’s job title or salary alone does not determine whether overtime applies.

Here are a few key areas to keep in mind.

Know the Basic Overtime Rule

Under federal law, most covered, nonexempt employees must receive overtime pay at 1.5 times their regular rate of pay for hours worked over 40 in a workweek.

A few important reminders:

• Overtime is generally calculated by workweek.
• Hours usually cannot be averaged across multiple weeks.
• Weekend or holiday work does not automatically qualify as overtime.
• State and local rules may add additional requirements.

Salary Does Not Automatically Mean Exempt

A common misconception is that salaried employees are automatically exempt from overtime.

That is not always the case.

Whether an employee qualifies for an overtime exemption generally depends on:

• How the employee is paid
• Their compensation level
• The actual duties they perform

Job titles alone do not determine exempt status.

Employers should consider reviewing classifications when employees are promoted, change responsibilities, or move into new roles.

Make Sure All Working Time Is Recorded

Accurate timekeeping is especially important for nonexempt employees.

Working time may include more than an employee’s scheduled hours. Depending on the situation, employers may need to account for:

• Work completed before or after a scheduled shift
• Emails or other work performed remotely
• Required training
• Certain travel time
• Short rest breaks

Clear timekeeping policies can help both employees and managers understand what should be recorded.

Bonuses Can Affect Overtime Calculations

Overtime is not always calculated using only an employee’s standard hourly wage.

Certain types of compensation may need to be included in an employee’s regular rate of pay, including some:

• Performance bonuses
• Commissions
• Shift differentials
• Productivity incentives

Employers that offer bonuses or other incentive compensation should make sure their payroll process accounts for them correctly.

Review Worker Classifications

Employers should also pay attention to the difference between employees and independent contractors.

Simply calling someone an independent contractor or paying them on a Form 1099 does not necessarily determine their classification.

Worker classification can affect:

• Payroll taxes
• Overtime requirements
• Benefits
• Recordkeeping
• Other employment obligations

Because the rules surrounding classification can change, these arrangements should be reviewed periodically.

Keep Good Payroll Records

Strong recordkeeping makes it easier to manage payroll and address questions if they arise.

Employers should maintain accurate records of items such as:

• Hours worked
• Regular and overtime pay
• Bonuses and other compensation
• Payroll deductions
• Total wages paid

Good records can also help businesses better understand labor costs and identify payroll discrepancies earlier.

Review Payroll as Your Business Changes

Payroll processes should evolve along with your business.

Consider reviewing your procedures when you:

• Hire additional employees
• Add remote or hybrid positions
• Introduce bonuses or commissions
• Change employee responsibilities
• Expand into new states
• Add independent contractors

A periodic payroll review can help identify potential issues before they become larger problems.

Stay Proactive

Payroll involves more than making sure employees are paid on time. Businesses also need to consider how employees are classified, how their time is tracked, and how different forms of compensation affect payroll.

As your team and compensation structures change, reviewing these practices can help keep payroll accurate and reduce unexpected issues.

If you have questions about how payroll changes may affect your business’s tax reporting or financial records, BNA CPAs & Advisors can help.