How to calculate overtime pay: How to Compute FLSA Overtime Pay

How to calculate overtime pay

For employees with fluctuating workweeks, the weekly salary serves as compensation for all hours worked during the week whether that is 20, 40, or 50 hours. Thus, the Regular Rate increases or decreases based on how many hours an employee works in any given week. Overtime is a 50% multiplier that is added to an employee’s base wage for hours worked over 40 hours in a work week. The intent behind paying overtime is to compensate employees for excessive work hours. Without at least a cursory knowledge of overtime calculations, it’s all too easy to overschedule your employees to the point that you then have to pay them extra. Do that enough, and you’ll break your business labor budget and send your bottom line into the red.

How to calculate overtime pay

From this information, our calculator will give you the details you need to know regarding your overtime. This shows you are taking initiative, and if your performance is above average, your boss should be willing to give you more work. Ideal shift planning can make all the difference between an organized team and constant challenges. Work schedule types vary widely by business, industry, and even region. Here, you’ll learn the ins and outs of comp time, who qualifies to receive… Creating the ideal work schedule for your team may seem like an impossible target to hit.

According to the FLSA, a workweek is a fixed and regularly recurring period of 168 hours or seven consecutive 24-hour periods. It may begin on any day of the week and at any hour of the day and is not impacted by an employee’s pay frequency, e.g., bi-weekly, semi-monthly, monthly. Additionally, each workweek stands alone, which means that averaging hours worked over two or more workweeks is not permitted.

This worker would not meet the weekly overtime threshold of the FLSA, but could be eligible for two hours of overtime pay for the hours worked on Thursday, depending on applicable state labor law. It’s calculated by dividing the total pay for employment in any workweek (except statutory exclusions) by the total number of hours actually worked. Thus, your overtime pay is equal to the normal hourly pay rate multiplied by the overtime multiplier paid by your employer, and then multiplied by the number of hours of overtime that you worked.

Your Overtime Pay Rate

The new regulations, effective January 1, 2020, require that exempt employees paid less than $684 a week receive overtime pay. An employer can continue to include non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary threshold. Calculating overtime pay is usually easiest with hourly employees who have a single rate of pay and no additional compensation. Following FLSA rules, multiply the regular rate of pay by 1.5 and multiply the result by the total number of overtime hours worked. To accurately calculate overtime pay, you must first determine the employee’s regular rate of pay.

It can also give you an annual wage, taking your overtime into account. To calculate the overtime for an employee that is paid on salary, start by converting their salary to an hourly wage. You can do this with our salary to hourly calculator, or simply divide their weekly pay by the number of hours they work per week. Before we delve into more details about how to calculate overtime using that overtime pay rate, let’s discuss the second formula you may need. Businesses that pay their employees a salary (as opposed to an hourly rate) typically classify those employees as exempt — meaning that they’re not eligible for overtime. The federal government (specifically the Department of Labor) assumes that all employees must be paid overtime if they work more than a certain number of hours in a week.

So, asking them to work a few extra hours won’t have as large an impact on your labor budget as asking a full-time employee to work to cover the shift. But, if you allow them to clock in fifteen minutes early — and you pay them for that time — they’ll amass an extra hour and fifteen minutes over the course of a five-day workweek. There is, however, another formula that yields the same overtime rate. This alternate formula can be useful in certain circumstances, which is why it’s important to know how to use it.

How To Calculate Overtime Pay

For the majority of the methods for calculating overtime, you’ll use formula one (the 1.5 overtime multiplier). But let’s see how to calculate overtime using total hours worked and formula two. In some areas, though, employers may be able to claim a tip credit against their minimum hourly wage obligation. Under DOL rules, a tip credit is determined by taking the federal hourly minimum wage rate ($7.25) minus the minimum cash wage for tipped employees ($2.13), which works out at $5.12 per hour. However, a tip credit cannot exceed the number of tips actually received by the employee.

  • Last week she worked 44 hours and was also awarded a commission of $50.
  • However, a tip credit cannot exceed the number of tips actually received by the employee.
  • The most common multipliers are time and a half, double-time, triple-time, and sometimes even quadruple-time.
  • Keeping in mind that these are only federal guidelines, your state may have different rules (and you’ll definitely want to check with your local labor laws before instituting any changes).
  • Before we delve into more details about how to calculate overtime using that overtime pay rate, let’s discuss the second formula you may need.

Note that certain states may have different methods of calculating overtime for piece-rate workers. Overall, overtime pay is a great way to increase your annual income and earning potential without having more than one job. Taking on new tasks, making your boss’s job easier, and going above and beyond are all ways to have overtime hours approved and work towards a future pay increase. Standard pay can be calculated by multiplying the normal pay rate by the number of hours that you normally work in a week. For any hours over 40 that this employee works during a seven-day period, you would be required by law to pay them at a minimum rate of $18 per hour. Not only does this help you to track overtime pay, but it also helps you to see where your employees are spending their time.

Is overtime calculated by day or week?

Sam is a call center employee who agreed to be paid on a weekly basis of $600. Under the FLSA, her agreement does not waive her right to overtime pay. Last week she worked 44 hours and was also awarded a commission of $50. If an employee works more than a specified number of hours in a week, the additional hours are called overtime. Pay for any hours worked as overtime are paid at a higher rate than regular hours. In addition, the total annual compensation level for “highly compensated employees (HCEs)” has been increased from the current level of $100,000 to $107,432 a year.

  • This is a set hourly minimum of at least one and one half times the standard wage.
  • Under federal law, to calculate a nonexempt employee’s regular rate of pay, divide the weekly salary by the total number of hours worked.
  • It’s important to keep an accurate record of the regular and overtime hours worked by employees in case of an audit by the Department of Labor or a lawsuit.
  • There is, however, another formula that yields the same overtime rate.

The calculation method varies depending on if the bonus or commission payment is allocated by the workweek or some other frequency, e.g., monthly, quarterly, annually. The federal government established this as law in the Fair Labor Standards Act (FLSA) of 1940. Before that, employers could require their employees to work any number of hours at their regular pay rate. Except for certain states that require premium pay daily, overtime is calculated by the workweek.

Non-discretionary bonuses and commission payments

As long as they have an internet connection, they can access work information at any time of the day or night and from any location. That can help prevent absenteeism from getting out of hand and can help reduce the risk that one employee will need to work overtime to cover an absent employee’s shift. Once you’ve set your business’s time clock regulations, publish them in the employee handbook so that everyone has access to the information and can refer to it if they have questions. Armed with that information, you can revise the schedule — who works when and for how long — so that each shift is covered and no one employee strays into overtime territory. A powerful way to reduce the impact that overtime has on your budget is to monitor labor costs in real time.

Certain types of other compensation, such as the following, must be included in overtime calculations. Note that certain states do not permit the fluctuating workweek calculation method. Review your pay practices to ensure that you are calculating and paying overtime in accordance with state and federal laws.

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. Once you have a list of items that you could do during overtime hours, meet with your boss to discuss them. If you can make your boss’s life easier, they are more likely to allow you to work overtime hours. However, the next step differs depending on whether the salary is for a fixed workweek of 40 hours, a fixed workweek of more than 40 hours, or a fixed workweek of less than 40 hours. For example, one rule might state that an employee’s shift (and when you start paying them) begins at the scheduled time (e.g., 9 a.m.) instead of when they clock in.

Because of the nature of their work, some employees are considered to be exempt from receiving overtime pay. In order to be classified as exempt, an employee must have specific types of job duties. Department of Labor regulates overtime and other pay provisions through the Fair Labor Standards Act. In addition to overtime provisions, the Act regulates child labor and minimum wage activities of U.S. employer. The most common exemptions include executive, administrative, professional, outside sales or computer-related jobs. The U.S. federal government stipulates that one of two conditions must be met in order for a salaried employee to receive overtime.

Double-time pay is typically paid for work done in unusual or extreme circumstances, such as working on a holiday or working over hours per week. However, there are no federal guidelines (except in California) on double-time pay, so each employer may differ in how they offer it. Read the FLSA fact sheet[3] to learn more about each of these exemptions and if they apply to you. If you are a salaried employee, make more than $684 per week, and are included in one of these exemptions, then you will most likely not be eligible for overtime pay. Whether you are eligible for overtime pay depends on the nature of your job, the state’s law in which you work, and how many hours you have worked in a given week. Any time an employee is “on duty,” that hour counts toward the 40 total hours allowed at regular pay.

Keeping proper records for overtime pay

If you don’t have a policy in place specifying employees’ work hours, then all hours worked over 40 in a workweek must be paid at the overtime rate. In the workplace, you’re either considered an “exempt” or a “non-exempt” employee based on your specific job duties. Only non-exempt employees are eligible for overtime pay according to the FLSA. In states that calculate overtime per workday, employers must apply the applicable overtime rate to each hour beyond what’s considered a regular workday, e.g., eight hours. Overtime Rate, sometimes known as OT, is the hours you work in addition to the set limit of the 40-hour working week.

An employee’s regular rate includes their hourly rate as well as the value of nondiscretionary bonuses, shift differentials, and certain other forms of compensation. That said, the overtime rate set by the government is just the minimum businesses have to pay their workforce for any overtime accumulated. A business could set its overtime rate at any number as long as it does not drop below 1.5 times the employee’s regular hourly wage.

The most common multipliers are time and a half, double-time, triple-time, and sometimes even quadruple-time. Most employers will pay time and a half or double pay for overtime, but you can use the calculator above to calculate your overtime with any multiplier. Training your employees to work in positions that are different from their regular job can help you get control of overtime costs throughout your business. Multiply that extra $1,000 by the number of employees in your business, and you can see how the overtime costs can add up quickly if you don’t enforce your clock-in/clock-out rules.