If you’ve ever asked yourself, “How do I calculate overtime?” this article is for you. Keep reading to learn how overtime works, how to calculate overtime for salary employees and hourly employees alike, and other overtime factors to consider (including overtime laws, bonuses and commissions, and industry-specific rules).
Overtime For Hourly and Salaried Employees
Overtime is any time over 40 hours a nonexempt employee works each week.
Whenever certain employees work more than 40 hours a week, you must compensate them with overtime pay. It is crucial to understand how overtime works to comply with labor laws.
To qualify for overtime, workers must meet the criteria for covered, nonexempt employees as defined by the federal government.
Let’s look at how overtime works and who counts as a nonexempt employee under U.S. overtime law.
How Does Overtime Work?
Some state laws require employers to pay overtime to employees who work more than eight hours in a workday, but in most states, overtime pay kicks in as soon as an employee passes their 40th hour worked in a week.
The Fair Labor Standards Act (FLSA) is the primary U.S. law determining overtime pay. The FLSA requires employers to pay nonexempt employees at least the federal minimum wage (currently $7.25/hour) and overtime pay for those who work more than 40 hours per workweek.
The FSLA does not require employers to pay overtime for holidays or weekends unless employees work overtime on those days.
Employees fall into two categories under the FSLA: Exempt and nonexempt.
- A covered nonexempt employee is an hourly worker who earns at least minimum wage. The FSLA requires employers to pay covered nonexempt employees at least one-and-a-half times their regular pay rate for any time worked beyond 40 hours per week.
- An exempt employee receives a salary for their work, and the type of work they do fulfills the exemption requirements set by the FLSA. The FLSA does not require employers to pay exempt employees a specific amount for minimum wage or overtime.
How to Calculate Overtime Pay For Hourly Employees
Many employers wonder how to calculate overtime for their hourly employees. Payroll services can help accurately classify employees as exempt or nonexempt and calculate overtime.
However, if you would prefer to do it yourself, here is the step-by-step process for calculating overtime for hourly employees.
Step 1: Determine Regular Weekly Pay
To calculate minimum overtime pay for an hourly employee, first, you need to know their regular weekly pay rate. You multiply an employee’s hourly rate by 40 hours to calculate their weekly pay.
Let’s say you have an employee who makes $20 an hour. You would multiply $20 by 40 hours for a weekly pay rate of $800.
Step 2: Calculate Hourly Overtime Pay Rate
Next, you take the employee’s hourly rate and multiply it by 1.5. Some employers offer more than the one-and-one-half-times normal pay rate minimum to entice employees to sign up to cover urgent or undesirable shifts. In those cases, you would substitute the number 1.5 for whatever overtime amount you decide to provide.
For your employee who makes $20 an hour, you would multiply $20 by 1.5 for an hourly overtime rate of $30.
Step 3: Determine Total Overtime Pay
Next, you take the result and multiply that amount by the number of overtime hours the employee worked.
If your employee makes $20 an hour, and you pay them 1.5 times that amount for overtime pay, the result would be $30 per hour. If the employee worked 10 hours overtime, you would multiply $30 by 10, totaling $300 in overtime pay.
Step 4: Calculate Total Pay
To get an employee’s total pay, you add the total overtime pay to the total regular weekly pay.
For an employee who regularly earns $800 for a 40-hour workweek and works 10 hours overtime, you would add $300 to $800 for a total pay rate of $1,100.
Here is a recap of the above calculations for an employee who regularly earns $20/hour and works 50 hours in a workweek:
Regular weekly pay: 40 hours x $20 = $800
Overtime pay rate: $20 x 1.5 = $30
Overtime pay: $30 x 10 hours = $300
Total pay: $800 (regular pay) + $300 (overtime pay) = $1,100
How To Calculate Overtime Pay For Salaried Employees
Now that you know how to calculate overtime pay for hourly employees, how do you calculate overtime for salaried workers?
So-called white-collar exemptions currently apply to salaried workers in office or professional positions who make over $684/week ($35,568/year). Exempt workers are not legally required to receive overtime pay. However, that may soon change, as the U.S. Department of Labor recently proposed that overtime protections be extended to most salaried employees making less than $1,059/week (~$55k/year).
An exempt status can apply to employees who earn a salary of at least $684/week, are paid regardless of how much they work in a given week, and fulfill any of the following duties:
- Executive: Employees who perform management duties for two or more full-time employees, including the ability to hire or fire other employees.
- Administrative: Employees who perform office or non-manual management or business operations.
- Professional: Employees who perform work requiring advanced knowledge in the field of science or learning that was acquired through specialized education.
- Computer: Employees who conduct skilled computer work such as analysis or programming (but not those engaged in manufacturing or repairing computer equipment).
- Outside sales: Employees whose primary duty is making sales away from the employer’s regular place of business.
Highly compensated employees perform office or non-manual labor and earn at least $107,432/year. They are exempt from the FLSA as long as they regularly perform one of the duties of an exempt executive, administrative, or professional employee as listed above.
Salaried employees in hazardous or physically demanding lines of work–such as manual laborers, police officers, and firefighters–are not exempt
You must pay overtime to salaried employees who earn under the exemption minimum or are excluded from the exemptions by their job functions and work more than 40 hours per workweek.
Hourly Rate Calculation Methods for Salaried Employees
To calculate overtime pay for salaried employees, you will first need to determine their hourly rate. You can figure out a salaried employee’s regular hourly rate by assuming a 40-hour workweek or basing the calculation on their weekly pay.
Calculate Hourly Rate Based on a 40-hour Workweek
For this method, you assume an employee works 40 hours a week, or 2,080 hours per year (52 weeks). Take the employee’s annual salary and divide it by 2,080 to get their hourly rate.
For example, let’s say an employee makes $30,000/year. You would divide $30,000 by 2,080 to get an hourly rate of $14.42.
Calculate Hourly Rate Based on Weekly Pay
Another way to calculate a salaried employee’s overtime pay is by dividing their weekly pay by the number of hours they regularly work per week.
For instance, if an employee receives a $500 paycheck each week and typically works 40 hours per week, you would divide $500 by 40 for an hourly rate of $12.50.
Once you have your salaried employee’s hourly rate, you can use the same method to calculate overtime that you would use for an hourly employee.
There is also the option to skip the manual calculation and use an online salary overtime calculator.
To use an overtime calculator for salary, you input an employee’s normal pay rate, time worked, and overtime worked in the correct fields, then choose the type of overtime the employee worked. Some online calculators also allow you to create a custom overtime amount.
Other Overtime Considerations
When calculating overtime, you will need to consider the following factors:
- The FLSA: This federal law requires employers to pay covered, nonexempt employees overtime for any time worked over 40 hours in a given workweek. Currently, certain salaried workers who make over $35,568/year are considered exempt from receiving overtime. However, you are still required to pay eligible salaried employees overtime.
- State overtime laws: Different states have laws concerning wages and overtime pay. Certain states limit how many overtime hours an employee can legally work. When state-specific overtime laws and regulations conflict with the FSLA, employers must pay the rate that is more profitable for the employee.
- Industry-specific overtime laws: Specific industries, such as healthcare and transportation, have special overtime rules that you should be aware of and follow.
- Bonuses and commissions: You must include bonuses and commissions when calculating overtime pay.
Conclusion
You should pay eligible employees–whether hourly or salaried–overtime compensation for the overtime hours they work. Most states require you to pay overtime for all time worked beyond 40 hours in a week, although some states require daily overtime pay.
Overtime pay should be at least one-and-one-half times the employee’s regular pay.
You must have an accurate method for tracking employees’ time and attendance and fairly compensate employees for the overtime hours they work. If you fail to pay overtime, you may be subject to financial penalties on top of having to issue retroactive pay (compensation that you owe employees for previous pay periods).
Appropriately scheduling employees, accurately tracking their time, and paying them accordingly can help you comply with overtime laws.
FAQs
- Can an employer require an employee to work overtime?
In most cases, an employer can require an employee to work overtime as long as it doesn’t put the employee in danger, but they must pay overtime to eligible employees.
- How do bonuses and commissions affect overtime rules?
Bonuses (such as merit pay) and commissions (money earned based on the number of sales an employee makes) must be included when calculating an employee’s overtime pay.
- How does travel time factor into overtime?
If you send nonexempt employees to off-site locations to complete work, you must pay them for travel time, and overtime when applicable.
