Pitfalls of Overtime Compliance

Hello and welcome back to another session of Visibility CFO, Tax and Legal.  I’m Emily Stubbs, and this is where we break down the real-world challenges our clients face—and share clear, actionable solutions that help business owners move forward with confidence.

Today, we’re talking about something all employers run into at some point—overtime pay compliance. It is an area filled with well-meaning mistakes and gray areas, especially for growing businesses juggling a lot of roles and responsibilities–and getting it wrong, even unintentionally, can lead to massive penalties, back pay, and lawsuits.

Our goal today? To give you clarity on five of the most common overtime pitfalls—and practical tips to help you stay on track.

#1: Misclassifying Employees as Exempt

This is one of the most common mistakes we see.

Many employers think if someone is salaried, they’re automatically exempt from overtime. Not true.

To be exempt, employees must meet specific criteria under the Fair Labor Standards Act—both in terms of salary level and job duties. 

Misclassification is often unintentional, and the good news is—it’s fixable. Doing a simple internal review of how roles are categorized can go a long way in preventing future headaches.

#2: Not Counting All Hours Worked

We’ve also seen businesses overlook time that should be included in total hours worked–it is not just the hours behind the desk. It can include travel between job sites, training sessions, or even a few minutes here and there answering emails.

It's easy to miss—but with a little awareness and good time-tracking practices, you can ensure your team is properly compensated, and your business is protected.

#3: Overtime Calculations That Miss the Mark

Overtime pay is based on an employee’s regular rate of pay—which is defined to include bonuses or commissions in addition to their hourly rate, so it is super important to make sure that “regular rate’ is being calculated correctly. 

It also gets tricky when your employees receive tips or are paid piecework rates. 

If you’re unsure what should or shouldn’t be included, it’s a great time to get clarity. We often help businesses run quick checks or set up systems that simplify this process going forward.

#4: Paying for Unauthorized Overtime

This is another big one. A common misconception is that if an employee works overtime without approval, it doesn’t need to be paid.

Here’s the truth: if the work was done, it should be paid. That doesn’t mean you can’t set boundaries or have clear policies around when overtime is allowed—but payment should still follow hours worked.

Setting expectations and maintaining open communication with your team can prevent these issues from becoming problematic.

#5: Responding When Employees Raise Concerns

Sometimes, an employee might raise a question about their pay—and it’s important that they feel heard and safe in doing so.

The law protects employees from retaliation, and creating an environment where questions and improvements are welcomed builds trust and helps your company grow stronger.

If something isn’t right, it’s better to know now than later—and we’re here to support you in making any needed adjustments smoothly and professionally.

Conclusion

In sum, overtime can feel complex and overwhelming, and what makes business sense may not always be in line with where the rules are. 

And while it is important to get it right, there are a few intentional steps you can take today—like reviewing classifications, improving time-tracking, and proactively reviewing pay structures—that will make a big difference. 

And you don’t have to figure it all out on your own.

If you’d like a second set of eyes on your policies—or help building systems that keep things clean and compliant—reach out.

We’re here to help you simplify the complex, and support your business as it grows.

Click the link to book a session with our team.

Let us help you stop guessing—and start seeing clearly. Let’s do this.