Keeping Overtime Costs From Draining Your Business

For many employers, overtime is one of those payroll expenses that can quietly spiral out of control. A few extra hours here and there may seem manageable, but when overtime becomes a pattern, it puts real pressure on cash flow and makes payroll harder to predict month to month. The good news is that with the right oversight, it's a cost you can get ahead of.

Know the Rules — and Who's Actually Exempt

Before you can manage overtime effectively, it helps to understand who qualifies for it. Under current federal law, most hourly workers must receive overtime pay for any hours worked beyond 40 in a week.

To be exempt from overtime requirements, employees generally need to earn at least $684 per week (or $35,568 annually) and meet certain job duty requirements.

It's a common misconception that salaried employees are automatically exempt. In reality, salaried workers who fall below the "highly compensated employee" threshold may still be entitled to overtime pay depending on their role and responsibilities. Misclassifying employees, even unintentionally, can lead to costly penalties and back-pay obligations.

It's also worth noting that state regulations can be stricter than federal rules. Some states have higher salary thresholds or additional overtime requirements, so it's important to stay current on the laws in your specific state.

Find Out What's Driving It

Once you have a clear picture of your obligations, the next step is identifying what's causing the overtime in the first place. Is it a staffing shortage in a particular department? Seasonal demand spikes? Inefficient scheduling? Poor time tracking?

Digging into the data often reveals patterns that aren't obvious on the surface. Once you know the root cause, you can address it directly rather than simply paying the bill each pay period.

Practical Ways to Reduce Overtime

There are several strategies that can help bring overtime under control:

• Cross-train your team. When employees can cover multiple roles, you have more flexibility in how you distribute work — reducing the likelihood that one person ends up carrying an outsized load.

• Leverage technology. Modern workforce management and scheduling tools can flag when an employee is approaching overtime thresholds before it happens. Time-tracking software also gives you better visibility into how hours are being allocated across your team.

• Review your staffing model. In some cases, bringing on part-time help or adjusting shift structures is more cost-effective than continuing to pay overtime rates.

• Set clear expectations. Make sure managers understand the cost implications of overtime and are empowered — and expected — to monitor it closely.

Overtime is sometimes unavoidable, but it should never go unmanaged. A proactive approach, grounded in a solid understanding of the law and supported by good data, can make a meaningful difference in your payroll costs over time.

If you'd like help reviewing your payroll structure or ensuring your employee classifications are correct, reach out to the team at Bruce & Company. We're here to help you keep more of what your business earns.

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About Bruce & Company, P.S.C.

Founded in 1976 by Gregory T. Bruce, Bruce & Company, P.S.C. is a full-service accounting firm proudly serving clients regionally, nationally, and globally, with our central office located in Madisonville, KY. For more than four decades, we’ve delivered trusted expertise in tax, financial planning, and auditing. Our knowledgeable team is dedicated to providing personalized service and practical solutions to help individuals and businesses achieve their financial goals. Contact us to learn more about how we can support you!