Overtime Tracking and Management for Small Businesses

Payroll surprises are never fun. Especially when a few “extra” hours push your labor budget off course or create compliance headaches. The good news? With a clear policy, the right timekeeping workflow, and simple checks each week, you can track, calculate, and control overtime with confidence.

Why Overtime Management Matters for Small Businesses

Running a small business often means wearing a lot of hats. You might be the owner, the manager, and sometimes even the HR department all rolled into one. In the middle of that balancing act, tracking employee overtime can feel like just another administrative task. But, the cost, compliance, and workplace culture impacts that overtime management has can be critical to your business.

• Cost: A handful of unapproved overtime shifts can snowball. Rounding, manual edits, or missed time entries hide real labor costs until it’s too late.
• Compliance: If time records aren’t accurate or you miscalculate the regular rate, penalties can add up quickly. The FLSA requires overtime pay of at least time-and-a-half for hours over 40 in a fixed, seven-day workweek for non-exempt employees. Getting that “regular rate” right, especially with bonuses or multiple rates is key.
• Culture: When the rules are clear and consistent, employees feel treated fairly. That helps retention and reduces disputes.
  
  

Overtime Basics You Need to Get Right (FLSA at a Glance)

Who’s eligible? Exempt vs. non-exempt in plain terms

Most hourly workers are non-exempt and earn overtime when they work more than 40 hours in a workweek. Some salaried employees also qualify for overtime (salaried ≠ exempt). Whether someone is exempt hinges on specific duties tests and a salary basis.

The Department of Labor’s 2024 rule to raise the salary thresholds was vacated by a federal court on November 15, 2024. As of now, DOL says it is applying the 2019 levels ($684/week for the standard salary level; $107,432 for highly compensated). Litigation and appeals are ongoing, so keep an eye on this page for updates.

What counts as “hours worked”

Pre- and post-shift tasks, required training, certain travel during the workday, and work messages after hours may qualify. You’re responsible for paying for all hours worked, including overtime, even if those hours weren’t pre-approved. Clear policies plus accurate time capturing are your best friends here.

The “regular rate” (where most mistakes happen)

Overtime is based on the regular rate, not simply the hourly rate. The regular rate includes most nondiscretionary bonuses, shift differentials, and commission earnings in the week they’re earned. That means you may need to blend earnings across rates and hours to get the true figure before applying time-and-a-half.

“Comp time” in the private sector

For private employers with non-exempt staff, compensatory time off generally can’t replace overtime pay. Comp time is a public-sector concept with special rules. If you want flexibility, consider flex scheduling within the same workweek and set clear approval workflows. 

Common Overtime Tracking Pitfalls (and Quick Fixes)

Manual timecards and rounding issues: Handwritten sheets and manual spreadsheets invite errors and disputes. We recommend companies move to digital capture (clock, mobile app, web) with precise timestamps.

Multiple pay rates: If an employee works at two rates in a week, you must compute a weighted regular rate before calculating the overtime premium. A timekeeping system that supports blended-rate rules avoids spreadsheet gymnastics.

Remote and field teams: Use mobile time with geofencing/geotagging and supervisor approvals. An audit trail (who changed what, when) helps if a complaint arises.

Recordkeeping, Audits, and Staying Ready: You must keep basic payroll records (payroll, CBAs, sales/purchase records) for at least three years. Keep supporting time records (timecards, schedules, wage rate tables, and edit logs) for two years. There’s no required format, but your records must be complete and accurate and available for inspection.

Build a Clear, Compliant Overtime Policy

What your policy should include:

• Definitions for commonly used terms like workweek, non-exempt vs. exempt, overtime eligibility
• Approval flow (who can approve overtime, and how last-minute needs get handled)
• Scheduling expectations (coverage planning and caps)
• Timekeeping rules (how to clock in/out, attestations, deadlines)
• Pay treatment for travel, training, on-call, and after-hours communications (as applicable under federal/state rules)
• Consequences for policy violations (e.g., working unauthorized OT still gets paid, but may trigger corrective action)

State-Level Nuances to Watch (Keep It Simple)

Some states (and cities) have additional rules such as daily overtime, seventh-day premiums, strict meal/rest requirements, or “spread of hours.” If you operate in multiple locations, configure your timekeeping rules per location and train managers accordingly. When in doubt, the stricter standard (state vs. federal) usually applies.

Scheduling & Cost Control, Without Burning Out Your Team

Monitor and analyze overtime trends: Instead of treating overtime as a random expense, track it like any other business metric. Weekly or monthly reports show which departments or roles rack up the most extra hours. For example, if your warehouse crew consistently hits overtime, it might signal the need for more staff during peak shipping weeks.

Forecast labor and set realistic buffers: Use recent sales or job volume to plan coverage. A small buffer of part-timers or cross-trained team members prevents last-minute OT spikes.

Cross-train to remove bottlenecks: If only one person can run a key task, that person’s schedule will drive overtime. Cross-training spreads workload and protects coverage during vacations or sick days.

Put guardrails in your system: Turn on overtime alerts (e.g., at 36 or 38 hours). Cap shifts in the scheduler. Require manager approval when someone is about to cross 40 hours.

How Horizon Helps With Overtime Tracking and Management

Partnering with a payroll service like Horizon Payroll takes much of the complexity out of overtime tracking. For small business owners, this means fewer late nights spent reconciling timesheets and more confidence that payroll is accurate. Here’s how:

• Automated calculations: Overtime rates are applied correctly every time, based on federal and state rules.
• Compliance updates: Payroll systems are updated as laws change, protecting you from unintentional violations.
• Custom reporting: Generate real-time reports on overtime by employee, department, or time period.
• Employee self-service: Workers can view their hours, pay stubs, and overtime history without constant manager involvement.

FAQs About Overtime for Small Businesses

Do small businesses have to pay overtime?

Yes. The FLSA applies to nearly all employers, regardless of size, though specific exemptions exist. State laws may impose even stricter requirements.

Can employers require employees to work overtime?

Generally yes, but overtime policies must comply with labor laws, and employers should consider morale and burnout when mandating extra hours.

How can outsourcing payroll help manage overtime?

Payroll providers automate calculations, ensure compliance with changing regulations, and deliver reports that make overtime easy to monitor.

Do remote employees’ messages after hours count toward overtime?

If the time is work, answering required messages, handling tasks, it’s generally compensable and may push the employee into overtime. Clear expectations and good time capture reduce risk.

Next Steps

Overtime can either be a hidden drain on your small business or a manageable part of your payroll process. The difference comes down to whether you have clear policies, accurate tracking, and the right tools in place.

If overtime tracking currently feels like a guessing game, it’s time to take a closer look. Horizon Payroll can help you reduce compliance risks, manage costs, and keep employees satisfied.