All companies need to account for uncompensated overtime, and yet when we speak with companies, most ask us, “What is Uncompensated Overtime?” The Federal Acquisition Regulations – which you must follow as a government contractor or grantee – explains that uncompensated overtime is “hours worked without additional compensation in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act” (i.e., salaried employees) (FAR 52.237-10). What does that mean exactly? It means your company is required to have a policy in place to account for uncompensated OT. If you don’t have a policy in place and your exempt employees are incurring OT, then it’s likely that you’re mischarging your government contracts and you’re subject to losing them.
Let’s look at an example.
Assume John is an exempt employee whose normal work week is 40 hours and he gets paid $800/week or $20/hr. Let’s further assume that John works all 40 hrs on government project #1. This results in an $800 charge to the government for direct labor on project #1 ($20/hr x 40 hrs). Easy enough so far. Now assume, rather than working 40 hours, John works 10 hours of overtime for a total of 50 hours. If John works 100% of the time (50 hrs) on government project #1, the direct labor charge to the project is $1,000 ($20/hr x 50 hrs). Can the contractor bill the government $1,000? The answer completely depends on how your company chooses to deal with it. What the company CANNOT do is bill the government $1,000 and pay the employee $800. (Did you really think you could do that?) This results in a mischarge to the government since you charge them more than your cost, a violation of FAR 52.237-10, which could result in a termination of your contract or grant.
Learn The Three Options to Account for Uncompensated Overtime:
- Accounting for Uncompensated Overtime Option 1
- Accounting for Uncompensated Overtime Option 2
- Accounting for Uncompensated Overtime Option 3