Category: Bookkeeping

Employers sometimes assume that a fixed weekly salary compensates employees for all hours worked, even normal balance if they exceed 40 hours in a workweek. If a salaried employee fails to meet any of these criteria, they are entitled to overtime pay. Some employers believe they can average an employee’s hours over two or more weeks to avoid paying overtime for hours worked beyond 40 in a single week. Exemptions for executive, administrative, and professional employees meeting job duties and salary tests. Outside sales employees are exempt if their primary duty is making sales or securing service contracts and they work primarily away from their employer’s location.

• This means employers operating in multiple states, or even just in states with more protective laws like California, cannot rely solely on meeting federal standards.
• Some compressed workweek schedules, such as nine, nine-hour days with one day off every other week, result in overtime hours during one of the two weeks of a biweekly pay period.
• It’s calculated by dividing the total pay for employment in any workweek (except statutory exclusions) by the total number of hours actually worked.
• According to the FLSA, the formula for calculating overtime pay is the nonexempt employee’s regular rate of pay x 1.5 x overtime hours worked.
• The FLSA, with some exceptions, requires bonus payments to be included as part of an employee’s regular rate of pay in computing overtime.
• These financial relationships support our content but do not dictate our recommendations.
• Build your organization’s credibility and ensure your employees receive the proper compensation for the extra hours they put into their work.

Step 4: Calculate overtime pay

Yes, there are certain types of payments that are excluded from the regular rate of pay. The required overtime pay is 1.5 times the hourly rate for hours worked in excess of 40 in a workweek. Overtime is calculated based on hours actually worked, and your employee worked only 35 hours during the workweek. Unless a policy, contract or collective bargaining agreement states otherwise, you needn´t count sick leave, vacation time, holidays, or other paid what is overtime pay time during which the employee did not actually work. While not mandated by federal law, some states and individual companies offer double overtime pay.

Salaried employees and other overtime exemptions

Overtime pay is the premium pay that employers are required to provide to nonexempt employees when they work more than the federally determined threshold in a workweek, typically more than 40 hours. It’s a form of compensation that ensures employees are rewarded for the extra hours they put in beyond the regular workweek. The federal law, under the Fair Labor Standards Act (FLSA), mandates the overtime pay rate at no less than one and a half times the employee’s regular rate, colloquially referred to as ‘time and a half’. Under the FLSA, overtime pay is additional compensation (i.e., premium pay) that employers must pay to nonexempt employees who work more than 40 hours in a workweek.

Averaging Hours Across Weeks

• A timesheet is the best way of reporting the working hours to the employer.
• The federal Fair Labor Standards Act (FLSA) establishes baseline requirements for overtime pay to compensate employees fairly for long hours worked.
• ⦁ Galvez and Gruta, as managerial employees, are not entitled to their claims for overtime pay, service incentive leave pay and premium pay for holiday and rest day.
• For federal compliance, the focus is on total hours exceeding 40 in a single workweek.
• Generally, employees shouldn’t request overtime if certain situations don’t require it or their employer doesn’t assign additional work.

For the other eight hours, John receives time and a half of $21.00 per hour ($14.00 x 1.5). So he receives $168.00 in overtime ($21.00 x 8 hours), and total weekly wages of $560.00 plus $168.00 for a total of $728.00. This means an employee who works overtime must be paid “time and a half”—the employee’s usual hourly wage plus the 50% overtime premium—for every overtime hour worked. For example, California mandates double overtime pay for hours exceeding 12 in a workday.

For Hourly Employees

Long-standing practices–like paying overtime only after 80 hours of work, which is prevalent in the construction industry–further complicate matters. In a daily overtime state, he would be entitled to overtime pay for the four extra hours he worked on Monday, even though he didn’t come close to working more than 40 hours in the week. For example, Alex is a non-exempt employee who works 12 hours on Monday and six hours on Tuesday (and doesn’t work any additional hours in the week).

StateMutual Agreements for Modified Workweeks

Typically, overtime pay is included with the wages earned in a regular payday or pay period. If you are in charge of hourly employees, it’s likely that there will be days, weeks, or even months when your staff needs to work extra hours. Whether that’s over a typical eight-hour workday or a 40-hour workweek, the federal government has made it mandatory to compensate all non-exempt employees. This is important as it protects workers and rewards them for the additional time they spend supporting your business. A nonexempt employee is an employee who is “not exempt” from FLSA requirements. These employees are hourly workers who earn at least the federal minimum wage and must be paid time and a half for overtime hours worked.

Example 3: Salaried Non-Exempt Employee (Fixed 40-Hour Schedule)

Your employer can discipline you for violating its policy by working overtime without the required authorization. However, wage and hour laws require that you are compensated for hours you work. This guide is intended to be used as a starting point in analyzing overtime pay and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. So, with high prices squeezing household budgets and many employers relying on overtime to fill staffing gaps, some lawmakers in Congress have proposed a new tax break for workers who put in extra hours. Every covered employer must keep detailed records for each nonexempt worker regarding hours worked and wages paid.

Example 1: Hourly Employee (Wage Only)

The regular rate of pay cannot be less than the minimum wage and includes all remuneration for employment except certain payments excluded by regulation. HR must ensure the company complies with all wage and hour legislation concerning overtime. The Federal government’s minimum standard is one and a half times the regular pay rate for non-exempt employees who work over 40 hours per week. This is because the fixed salary is considered to compensate for Insurance Accounting all hours worked (straight time), even those over 40.

However, you may need more or less depending on your organization’s size, risk profile, cash flow, and goals. In addition to traditional sources like grants and donations, nonprofits should explore diversified revenue streams to reduce dependency on any single source. Every nonprofit should explore the following diversified avenues (or expand them if they are already being pursued). Here are some sample tables indicating what a financial planning template should look like. Measuring a nonprofit’s financial status can be challenging since everything could change with a single large donor or a legacy gift. However, looking at past trends and analyzing them is critical, keeping the chances of outlier occurrences to one side.

• Not only is some financial data required by the IRS, but tracking your donations and expenses is also vital to effective financial management.
• While organizations need to make sure they can afford costs, there is no profit motive and no shareholders to satisfy.
• As your entire plan is prepared based on assumptions, you’ll need to regularly review and validate your financial assumptions through research, market analysis, and consultation with stakeholders.
• Sometimes things go wrong – contracts are lost, fundraising plans flounder, and expenses skyrocket.
• A well-structured budget helps your nonprofit to allocate resources strategically, supporting a clear income and expense plan.
• The key to a successful project plan is making sure that everyone involved in the project understands their individual roles, deliverables, and deadlines.

Show why you deserve donations

They allow leaders to identify areas where they can reallocate resources to address urgent needs. Strategic financial planning is an integral part of a nonprofit organization’s success, enabling it to achieve financial sustainability, drive growth, and focus on its mission-driven objectives. This lack of nonprofit financial planning can lead to reduced impact, lost opportunities, and even compromise a critical component of the organization’s survival.

Income statement (statement of activities)

It allows you to see exactly what each of your individual programs is costing, whether you have the resources available to effectively run the program and determine if the program is sustainable. The first ‘what’,fund accounting, allows a nonprofit to match their sources https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ of revenue with its designation. This provides a method of measuring if a nonprofit has the resources available to meet their mission-based goals. It identifies the sources of revenue and shows how efficiently a nonprofit is using those revenues for their designated purpose.

• The process of budgeting can be daunting, but it is necessary to ensure the success of your organization.
• With years of experience working closely with nonprofits, we will be with you every step of the way toward realizing your organization’s mission.
• It identifies the sources of revenue and shows how efficiently a nonprofit is using those revenues for their designated purpose.
• Achieving this financial stability requires strategic financial planning – a comprehensive, forward-looking approach to making financial decisions that align with the organization’s goals and vision.
• Generally, expense projections are estimated ongoing costs or day-to-day operating expenses that will keep your organization running smoothly.
• If you’re looking for an all-star accounting team to support your nonprofit as it builds its financial plan, we should talk.
• For example, as part of a goal to increase small dollar donations, you’ll need a project plan for your year-end appeal, as well as ongoing donor communications.

Navigating federal funding uncertainty: Strategic approaches for nonprofit resilience

Consider the potential risks and issues that could arise, and determine the best strategies for responding. Consider the financial resources and personnel you have available, as well as any outside resources that could be of help. Additionally, make sure to update your contingency plan regularly to ensure it continues to meet the needs of your organization. A solid financial plan can benefit even the most effective and well-established nonprofits. That’s because the best financial plans will take your org to new heights, allow it to best accomplish its goals, and ensure its financial success for years to come.

This requires a strategic approach, integrating robust financial education among leadership and staff to enhance decision-making capabilities. Nonprofit accountability plays a critical role, as transparency in financial reporting builds stakeholder trust and supports ongoing funding. Effective financial sustainability hinges on accurate budgeting, cash flow management, and reserve policies that buffer against economic fluctuations. Moreover, nonprofits must implement rigorous monitoring and evaluation frameworks to assess financial health continuously. By prioritizing financial education, organizations equip themselves with the analytical tools necessary for forecasting and risk mitigation. Ultimately, a disciplined focus on nonprofit accountability and financial literacy forms the foundation upon which sustainable mission delivery is constructed, ensuring resilience in a dynamic funding landscape.

Stay compliant with IRS tax exemption requirements

A nonprofit strategic plan is a written roadmap for where an organization is going, how it will get there, and specific ways to determine if the organization has “arrived” at the destination. A strategic plan is the result of a process accounting services for nonprofit organizations designed to create a shared vision and strategic alignment across organizational stakeholders. Integrate your expense management with your fund accounting to sync your data across your systems and avoid duplication and inconsistency. Use purchase cards or a system that creates credit card feeds directly into your expense management. Automatically allocate your expenses to the appropriate funds and programs based on predefined rules and criteria.

• This means that, like staff, board members will be attracted by vision and mission.
• But staying financially solid while also being nimble enough to handle surprises like recessions and weather events is hard even for the most seasoned nonprofit.
• This can include goals related to causes and impact and financial goals (and how the two are connected).
• Specifically, you should look at your expenses, income, and the funds available to you.
• Engaging in periodic financial audits or assessments of financial statements can help identify areas for improvement and reinforce financial integrity.
• A nonprofit exists to perform specific services and programs, as stated in their mission.