Your Most Common Payroll Questions
I pay my employees twice a month. How do I calculate overtime?
It’s easy to figure out overtime hours when you pay every week, but if your payroll runs every other week or twice per month, how do you know how many overtime hours an employee earned? The answer: when does your week start and end? Remember, that’s not asking when your office is opened, but which period of time an official payroll week covers. For example, you might decide to use a Sunday to Saturday, or a Monday to Sunday week. You could even use a Wednesday to Tuesday week, if you’d like – it doesn’t matter, as long as you stick with it.
So, now that you know your week, you need to be aware that overtime hours are calculated based on that week, not the payroll period. Say, for example, your payday is every other Friday and you have an employee that worked 87 hours. That means you pay them 7 hours of overtime, right? Well, maybe. If the employee worked 43 hours one week and 44 hours the next, sure, that would be 7 hours of overtime. But what if they worked 50 hours one week and 37 hours the next? That still equals 87 hours total, but knowing that you have to pay overtime rates for any hours worked over 40 in a one-week period, you know that you have to pay for 10 hours of overtime during the week the employee worked 50 hours.
Does holiday pay or PTO hours count toward overtime?
You might be surprised the number of times this question comes up. Let’s say you gave your employees a paid day for a Monday holiday. Then, Tuesday through Friday a couple of your employees worked a few extra hours to catch up on filing insurance claims and taking inventory. One of your employees worked 38 hours and the other worked 42. Once you add in the 8 hours of holiday time, you’re going to be paying a bit more overtime than you planned on, right?
Wrong. Holiday pay, sick time, vacation, PTO, etc. do not factor into the overtime calculation. You must pay non-exempt employees 1.5 times their hourly rate for hours worked over 40 – “worked” being the key word. So, for your employee who actually worked 38 hours, when you add in the holiday pay you’ll be paying for 46 hours at their regular hourly rate time. The employee who worked 42 hours would be paid 48 hours at their regular hourly rate, and two hours at their overtime rate.
How long do I have to supply a separating employee with their final check?
In Texas, if an employee quits you’re welcome to wait until your next regularly scheduled pay day. However, if you fire an employee you have to issue a final check within six business days.
I want to give my employees a bonus. Can I just write them a check or give them a gift card?
This is probably the most popular question, and it’s one with an easy answer – no. No, no, no. No to any question that centers around paying employees in any form other than through your payrolls system. The IRS does not consider gift cards in any amount to be administratively impractical to track, and therefore you must pay payroll taxes on the amount of any gift card furnished to employees. Same goes for paper checks. If you want the employee to receive the full amount of the bonus, not less for taxes, then increase the amount of the check to the point where taxes taken out will reduce the check to the intended bonus amount. Then, because it’s easier to account for, run it through your payroll system.
Some of my employees stay “on-call” outside of normal hours, in case of emergencies. How do I pay them for that time? Do I have to pay their hourly rate for the whole time they’re on-call?
When an employee is “engaged to wait,” such as the time they’d spend waiting for you to disembark through a plane and pick up baggage, etc., you have to pay them for that time, because they are unable to spend that wait time in a manner that they please. However, when employees are on-call, they’re “waiting to be engaged,” and can spend the time in between engagements in whatever manner they choose. For a non-exempt employee (paid by the hour), you only have to pay them for the time they spend actually engaged in work activities. So, if an employee is on-call for three hours and they spend thirty minutes answering phone calls, scheduling patients, etc. you only have to pay them for those thirty minutes of working time, which you factor into your overtime calculation if that takes them over 40 hours worked in your determined one-week period. If no patients call during that on-call period, they aren’t performing any job functions and you wouldn’t pay them for that time. An exempt employee would be paid their regular salary, because that’s the nature of exempt.