Common Small Business Overtime Mistakes
- Believing all salaried employees are exempt — exemption requires both salary threshold AND duties test
- Not tracking hours for non-exempt employees because they’re 'trusted' or 'salaried'
- Incorrectly classifying workers as independent contractors to avoid overtime
- Not including non-discretionary bonuses in regular rate calculations
- Using biweekly time periods to 'average' hours and avoid overtime
- Not paying for all time worked (off-the-clock work, required prep time)
- Not understanding which employees are covered by FLSA vs. state overtime laws
FLSA Coverage for Small Businesses
FLSA covers enterprises with $500,000+ in annual gross revenue. Even without enterprise coverage, individual employees engaged in interstate commerce are covered regardless of employer size. Given how broadly 'interstate commerce' is interpreted (handling out-of-state products, using email/phone, etc.), almost any small business has some FLSA-covered employees. Most small businesses should operate as if FLSA applies.
Conduct an annual classification audit: list every employee, their weekly salary or hourly rate, and their primary job duties. For anyone over $684/week — verify they truly meet the executive, administrative, or professional duties test. For anyone under $684/week — they are non-exempt regardless of title. Document the classification rationale in each employee’s personnel file.
Required Records for FLSA Compliance
- Employee information: name, address, occupation, date of birth (if under 19)
- Pay rate: regular hourly rate for each non-exempt employee
- Hours: total hours worked each day and each workweek
- Overtime hours and earnings each workweek
- Total wages paid each pay period
- Date of payment and pay period covered
- Deductions from wages
- Retain records 3 years (wage/hour records); 2 years (supplemental)
Verify Correct Overtime Calculations for Your Employees
Use the calculator to check that your payroll system is computing overtime pay correctly.