Management of employee overtime and its cost are frequent topics of discussion among dairy farmers. By rule in Minnesota, overtime is due to hourly agricultural employees working more than 48 hours per week. Most farms try to schedule employees to minimize the overtime, but farms are unpredictable and extra hours are sometimes unavoidable. There is a way to manage overtime payment and labor costs, if you are able to flex schedule your workforce. That method utilizes a time-off plan as an alternative to cash payment (Andrew Naylor and Brian Clifford, 2012).
If an employee works 50 hours in the first week of the pay period, he/she is due overtime pay for 2 of those hours at 1½ times their normal pay rate. If you need that employee for their full 48-hour work week the following week, adding that amount to their paycheck is your only option. If, however, you are able to operate without 48 hours from that employee the next week, you could schedule him/her for 3 hours less and then pay them the same cash amount as if they were working a normal pay period totaling 96 hours. The 3 hours reduced schedule is calculated as the 2 extra hours worked the previous week times 1½ (overtime pay requirement).
The time-off method will only work, though, for overtime worked at the beginning of a pay period. If the overtime is worked in the last week of a pay period, it must be paid as cash wages at the overtime rate.
A key point to remember is the rate of 1½ times the normal rate of pay or 1½ hours off for every hour of overtime worked in the first week. If an employee works 2 extra hours in one week, you cannot simply schedule them for 2 hours less the following week. They are owed overtime pay for that first week.
If you pay your employees every week, the time-off balancing is not possible since the hours off must be within the same pay period.
If an employee works 50 hours in the first week of a 2-week pay period:
OPTION 1: Pay normal overtime in the pay check; 1½ times the normal hourly rate of pay.
Result is a paycheck that is larger than normal due to the OT pay.
OPTION 2: Reduce the employee's work schedule the following week by 3 hours; 2 hours of OT at the 1½ times rate. Result is the same paycheck as if the employee had worked a normal 96-hour pay period.
Because of the complexities of the Federal Labor Standards Act (FLSA) and administering a time-off program, it is always advisable to check with legal counsel before implementing such a plan. Salaried employees may not be totally exempt from overtime on farms, either. Courts have determined that in order to be exempt from overtime, a farm employee must be paid at least as much as if they had worked 48 hours at the minimal pay rate plus 17½ hours of overtime at 1½ times normal pay rate (Bloomberg DNA Daily Labor Report, July 9, 2012). Full time, salaried employees paid at less than that amount (approximately $28,000 annually), may be eligible for overtime payment.