SMALL BUSINESS
05/10/2010 05:04 pm ET | Updated Aug 09, 2011

Overtime: 5 Things You Need To Know

Are you lost in the labyrinth of regulations pertaining to overtime? You're not alone. Plenty of business owners inadvertently find themselves confused when it comes to understanding and complying with complicated federal and state wage laws. But violations can lead to unhappy employees and even penalties, so figuring it all out should be a top priority for entrepreneurs who want to squeeze more out of their busy staffs. What are the best ways to traverse the maze of overtime regulations? Here are five things you need to know.

1. Know who is -- and isn't -- entitled to overtime.
The distinction depends on whether employees are exempt or non-exempt. Generally, the determination is based on how much and when they are paid, as well as the kind of work they do. Every state is different, but in California, for example, "the analysis involves looking at each employee's job duties and rate of pay on an individual basis to determine whether he or she falls into the 'exempt' category," says Cassandra Ferrannini, an attorney and partner at Downy Brand in Sacramento. "If they are 'exempt,' they need not be paid overtime. Certain types of employees -- notably certain professionals with licenses from the state -- are pretty easy to figure out. But with other types of employees, the lines are not very [clear], and it is easy to make mistakes in making the determination." Entrepreneurs who aren't completely sure should consult an attorney. For reference, the Department of Labor provides a list of exemptions.

2. Beware the most common misconception.
Business owners sometimes think, "'If I pay this person on a salaried basis, rather than at an hourly rate, then I automatically don't have to pay them overtime,'" Ferrannini says. "This idea is incorrect. The manner of payment does not determine whether or not the employee is exempt or non-exempt." Consulting an attorney or the Department of Labor website will be able to help you make the correct determination.

3. Maintain clear, concise records.
It's up to you to keep detailed records of non-exempt employees' hours worked per day and week, pay rate, overtime earnings and so on. "The most important thing for any employer is to keep accurate records of the hours worked by all non-exempt employees, including documentation that they took their meal and rest breaks," says Ferrannini, who works with small businesses about 70 percent of the time. "The employees should sign off on these records and acknowledge their accuracy." Requirements vary from state to state, but Ferrannini notes this is especially important in California: "It often becomes the employer's burden to show what hours the employees worked." The Department of Labor provides a handy guide on record-keeping requirements.

4. Keep employees informed.
Some companies fail to inform employees of the law. It's mandated you post an official poster outlining the Fair Labor Standards Act in your break room or other common area used by your employees.

5. Read all about it.
Further details on basic requirements, employee rights, penalties, and more can be found on the Department of Labor's overtime guide. You should also check your state's website. Staying up-to-date on the law allows you to protect your business, respect the rights of employees and ensure you're not hit with any unwelcome surprises.

The original version of this article appeared on AOL Small Business on 5/10/10.