Off The Clock How to avoid costly mistakes in calculating and paying overtime

The basic concept of overtime sounds pretty simple: Employeeswho work more than a certain number of hours get paid at a higherrate for the extra hours put in. The actual practice is far morecomplex, however, with a lot of gray areas to consider. And makinga mistake could hurt later in back pay and penalties if you getcaught, says Steve Milner, a managing partner with Squar Milner, anaccounting firm in Newport Beach, California.

Milner says the most common mistake employers make when it comesto overtime is in how they classify employees. Essentially,employees are either "exempt," which means overtime rulesdon't apply, or they're "unexempt," which meansovertime rules do apply. Milner says administrative workers insmaller businesses are often misclassified as "exempt"when, because they lack supervisory duties, they should be"nonexempt."

Another problem occurs when an employee's responsibilitiesshift. "In the entrepreneurial environment, change happensquickly," Milner says. You might change someone's jobdescription and not bother to adjust his or her pay structure--andfind out after a complaint has been filed that the new job shouldhave been classified differently. "Whenever you make a changein the way employees do their jobs, think about whether they'restill classified correctly," Milner advises.