Table of contents
- What is Overtime Pay?
- Who Is Exempt From Overtime?
- How to Calculate Overtime Pay for Hourly Employees
- Overtime pay calculation for nonexempt employees earning a salary
- Calculating Overtime Pay for Non-Hourly Compensation
- Overtime rules and regulations
- Keeping Proper Records for Overtime Pay with Connecteam
- FAQs
Understanding how to calculate overtime pay could not only ensure you’re fairly compensating your employees for their additional labor but also help you navigate and uphold your obligations under the labor laws.
We will provide step-by-step instructions and examples to help you accurately calculate overtime pay for different scenarios.
Key Takeaways
- To calculate overtime pay, determine the regular rate of pay and multiply it by the overtime rate.
- Overtime pay applies to hours worked beyond 40 in a workweek.
- The regular rate of pay includes hourly wages and other compensation.
- Certain employees may be exempt from receiving overtime pay.
- Proper recordkeeping is important to ensure compliance with overtime regulations.
What is Overtime Pay?
Understanding overtime pay is crucial if you find your staff clocking more than the stipulated 40 hours per week.
Whether they’re receiving hourly wages or a salary, knowledge of overtime rules can ensure they’re compensated fairly for their additional labor.
Overtime pay — or the overtime premium — essentially refers to the extra money you earn for the hours worked beyond your regular working hours.
It is regulated by the Fair Labor Standards Act (FLSA) in the United States. The FLSA ensures that eligible employees are fairly compensated for their overtime hours.
What is the FLSA Regular Rate of Pay?
The FLSA regular rate of pay is at the heart of overtime calculations. It’s the average hourly rate determined by dividing your total pay (excluding overtime premiums) by the total number of hours worked in a workweek.
This regular rate forms the foundation to calculate the overtime rate per hour, which is typically 1.5 times this regular rate for hours worked over 40 in a week.
It’s important that you understand how to factor in all compensation, including bonuses or commissions, to accurately determine your regular rate of pay.
- Overtime pay: Extra compensation at 1.5 times the regular rate
- Regular working hours: Typically refers to the standard 40-hour workweek
- Calculate overtime rate per hour: Multiply your regular rate by the overtime multiplier
- Overtime rules: Governed by the Fair Labor Standards Act (FLSA)
- FLSA regular rate of pay: The average hourly wage calculated weekly
Who Is Exempt From Overtime?
Overtime typically applies to nonexempt employees, who are entitled to receive overtime pay for hours worked beyond the standard 40-hour workweek.
However, certain categories of employees may be exempt from overtime requirements based on their job duties and salary. These categories include executive, administrative, and professional employees.
To qualify for the overtime exemption, these employees must meet specific criteria set forth by the FLSA. The criteria generally revolve around the nature of their work, the level of responsibility they hold, and the compensation they receive.
Exempt employees are typically salaried rather than hourly workers, earn over $684 per week, and have greater flexibility and independence in their job tasks. They often hold positions that involve managerial or professional responsibilities, where they exercise discretion and decision-making authority.
💡 Pro Tip:
Be sure to correctly determine the exempt status of their employees to ensure compliance with overtime regulations. Misclassification can result in legal consequences and potential financial liabilities for the employer.
How to Calculate Overtime Pay for Hourly Employees
Calculating overtime pay for hourly employees involves determining the regular rate of pay and multiplying it by the overtime rate for hours worked beyond 40 in a workweek.
Use our handy overtime calculator:
To make your life easier, we developed a simple overtime calculator. All you have to do is plug in the relevant information and the tool will do the rest.
Overtime Calculator
Total regular pay
/ month
Overtime pay
/ hour
Total overtime pay
/ month
Total pay
/ month
If you still want to know how to calculate overtime manually, here’s a step-by-step guide to help you navigate the different overtime scenarios:
Calculating Overtime for Multiple Pay Rates
If your hourly employees have different pay rates for different tasks or assignments, you’ll need to calculate overtime separately for each rate.
Here’s how:
- Identify the hours worked at each pay rate.
- Calculate the regular rate of pay for each rate by dividing the total earnings at that rate by the total hours worked at that rate.
- Calculate overtime pay for each rate by multiplying the regular rate of pay by 1.5 and then multiplying that by the number of overtime hours worked at that rate.
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We put together a list of the best employee time tracking apps so your timesheets will be perfect everytime.
Calculating Overtime for a Salaried Employee with a Fixed Schedule
Calculating overtime for salaried employees with a fixed schedule follows a different approach.
Here’s what you need to do:
- Determine the employee’s regular rate of pay by dividing their salary by the number of hours in their regular workweek.
- Calculate overtime pay by multiplying the regular rate of pay by 0.5 and then multiplying that by the number of overtime hours worked.
Keep in mind that some salaried employees may be exempt from overtime requirements based on their job duties and salary level.
Make sure to review the FLSA guidelines and consult with legal professionals to ensure compliance.
Overtime pay calculation for nonexempt employees earning a salary
While salaried employees are typically exempt from overtime requirements, there are certain cases where they may still be eligible for overtime pay.
Calculating overtime for a nonexempt employee that works a fluctuating workweek
When a nonexempt employee’s workweek varies, calculating overtime pay can become more complex.
The fluctuating workweek method allows you to determine the regular rate of pay, and therefore the overtime rate, for these employees.
To calculate overtime pay for a nonexempt employee on a fluctuating workweek, follow these steps:
- Determine the employee’s total salary for the workweek. This includes both their fixed salary and any additional compensation earned.
- Calculate the employee’s regular rate of pay by dividing their total salary by the total number of hours worked in the workweek.
- Multiply the regular rate of pay by 0.5 to determine the overtime rate.
- Determine the total number of overtime hours worked during the workweek.
- Multiply the overtime rate by the total number of overtime hours to calculate the overtime pay.
- Add the overtime pay to the employee’s straight-time pay (total salary) to determine their total compensation for the workweek.
💡 Pro Tip:
The fluctuating workweek method can only be used for employees who have a clear mutual understanding with their employer about the fluctuating workweek arrangement.
Additionally, the employee must receive fixed salary payments regardless of the number of hours worked in a workweek.
Calculating Overtime Pay for Non-Hourly Compensation
There are two common scenarios that come into play when calculating overtime pay for non-hourly compensation: piece-rate work and non-discretionary bonuses/commission payments.
Piece-Rate Work
Calculating overtime for piece-rate work involves a slightly different approach than hourly work, as it’s based on the quantity of work done rather than the number of hours worked. Here’s a general method to calculate overtime for piece-rate workers:
- Determine Regular Earnings: Calculate the total earnings for the workweek by multiplying the number of pieces completed by the rate paid per piece.
- Calculate Regular Rate of Pay: Divide the total earnings for the week by the total number of hours worked. This gives you the regular rate of pay.
- Overtime Rate: Typically, overtime is paid at 1.5 times the regular rate of pay.
- Calculate Overtime Earnings: Multiply the regular rate of pay by 1.5 and then by the number of overtime hours worked.
- Total Earnings: Add the regular earnings to the overtime earnings to get the total earnings for the week.
Here’s a simple example:
A worker completes 500 pieces in a week at a piece rate of $2. The worker worked 50 hours in the week.
- Regular Earnings = 500 pieces x $2/piece = $1000
- Regular Rate of Pay = $1000 / 50 hours = $20/hour
- Overtime Hours = 10 hours (since 40 hours is the standard workweek in many places)
- Overtime Earnings = $20/hour x 1.5 x 10 hours = $300
- Total Earnings = $1000 (regular) + $300 (overtime) = $1300
Non-Discretionary Bonuses and Commission Payments
Non-discretionary bonuses and commission payments, which are tied to performance or productivity, also need to be considered when calculating overtime pay.
Here’s how you can calculate it:
- Determine Total Earnings for the Workweek: This includes the regular hourly wages, non-discretionary bonuses, and commission payments for that week.
- Calculate the Regular Rate of Pay: Divide the total earnings for the week (including bonuses and commissions) by the total number of hours worked in that week. This gives you the adjusted regular rate of pay.
- Overtime Rate: The overtime rate is typically 1.5 times the regular rate of pay.
- Calculate Overtime Earnings: Multiply the adjusted regular rate of pay by 1.5 and then by the number of overtime hours worked.
- Total Earnings: Add the regular earnings (including bonuses and commissions) to the overtime earnings to get the total earnings for the week.
Here’s an example:
A worker earns an hourly wage of $15 and works 45 hours in a week. They also receive a $100 non-discretionary bonus for that week.
- Total Hourly Earnings = 45 hours x $15/hour = $675
- Total Earnings including Bonus = $675 + $100 (bonus) = $775
- Regular Rate of Pay = $775 / 45 hours = $17.22/hour
- Overtime Hours = 5 hours (assuming a 40-hour workweek)
- Overtime Earnings = $17.22/hour x 1.5 x 5 hours = $129.15
- Total Earnings = $775 (regular + bonus) + $129.15 (overtime) = $904.15
Overtime rules and regulations
The Fair Labor Standards Act (FLSA) establishes the federal guidelines for overtime pay in the United States, including the definition of nonexempt employees, the calculation of overtime rates, and the enforcement of overtime requirements by the Department of Labor.
Understanding these rules and regulations is crucial for both employers and employees to ensure compliance and fair compensation.
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Read our full guide on federal employment laws and your obligations as the employer.
The Fair Labor Standards Act (FLSA)
The Fair Labor Standards Act (FLSA) is a federal law that sets the standards for minimum wage, overtime pay, recordkeeping, and child labor in the United States.
It establishes the rules for overtime pay and defines nonexempt employees who are entitled to receive overtime compensation for hours worked beyond 40 in a workweek.
The FLSA also governs the calculation of overtime rates and mandates that overtime pay should be at least one and a half times the employee’s regular rate of pay.
Nonexempt employees
Nonexempt employees are workers who are not exempt from overtime pay requirements under the FLSA.
They are entitled to receive overtime compensation for hours worked beyond 40 in a workweek.
Nonexempt employees include most hourly workers and some salaried employees who do not meet the criteria for exemption based on job duties and salary level.
Calculating overtime rates
Overtime rates are calculated based on the employee’s regular rate of pay.
The regular rate of pay includes the employee’s hourly wages, as well as any additional compensation such as bonuses or commissions.
For each hour worked beyond 40 in a workweek, the employee should be paid an overtime rate of one and a half times their regular rate of pay.
Enforcement of overtime requirements
The Department of Labor is responsible for enforcing overtime requirements under the FLSA.
Employers found to be in violation of overtime rules may be subject to penalties and fines.
Employees who believe their overtime rights have been violated can file a complaint with the Wage and Hour Division of the Department of Labor or pursue a private lawsuit to seek unpaid wages and damages.
State overtime laws
In addition to the federal regulations set by the FLSA, many states have their own overtime laws that provide additional protections for employees.
These state-specific laws may have different criteria for exempt employees, overtime rates, or workweek definitions.
It is important for employers and employees to be aware of both federal and state overtime laws to ensure compliance.
Keeping Proper Records for Overtime Pay with Connecteam
When it comes to complying with labor laws, one crucial aspect is the importance of keeping proper records for overtime pay.
Ensuring your employees receive the total pay they’re entitled to for overtime hours worked is not just a matter of fairness; it’s also about protecting your business from potential disputes or audits.
This is where a reliable employee time clock app like Connecteam becomes invaluable.
Accurate record-keeping benefits both you and your employees:
Connecteam offers a clear log of hourly rates and hours worked, helping to calculate overtime pay with precision.
Its automated system ensures every overtime hour is recorded and compensated in accordance with labor laws.
This thorough and straightforward means to track and report critical data makes Connecteam an ideal choice for your timekeeping needs.
Implement a Reliable Time and Attendance System:
Connecteam’s digital time clock records exactly when employees clock in and out, providing a detailed account of hours worked.
This significantly reduces the likelihood of human error in timekeeping and streamlines the process of logging hours.
Regularly Review Time Records:
With Connecteam, ensuring that the hours worked and overtime calculated align with employee timesheets and job schedules is simplified.
The system offers an easy-to-use interface for regular reviews, enhancing the accuracy of your payroll.
Apply Relevant Labor Laws:
Overtime regulations can vary by state and industry. Connecteam allows you to set different rules for employees helping you remain compliant. Its customizable settings allow for specific configurations to meet different legal requirements.
Keep Thorough Records:
Storing your payroll records, including detailed overtime calculations, is secure and straightforward with Connecteam. The system provides a centralized location for all records, easily accessible for legal or financial references.
Effective record-keeping for overtime with Connecteam ensures that you’re not only rewarding your employees appropriately but also safeguarding your operations against any compliance issues.
Best of all, Connecteam is incredibly affordable with paid plans starting at only $29 for up to 30 employees. Small businesses with fewer than 10 employees even get to enjoy all of Connecteam 100% for free.
FAQs
How do you calculate overtime pay?
To calculate overtime pay, determine the employee’s regular rate of pay by dividing their total pay for the workweek by the total number of hours worked. The overtime rate is usually 1.5 times the regular rate. Multiply the overtime rate by the number of overtime hours worked and add it to the employee’s regular pay to get the total overtime pay.
What is the FLSA regular rate of pay?
The regular rate of pay, as defined by the Fair Labor Standards Act (FLSA), includes the employee’s hourly wages and any additional compensation earned in a workweek, such as bonuses or commissions. To calculate overtime pay, the regular rate is used as the base for determining the overtime rate.
How to calculate overtime pay for hourly employees?
To calculate overtime pay for hourly employees, determine their regular rate of pay by dividing their total pay for the workweek by the total number of hours worked. If they worked more than 40 hours in a workweek, multiply the overtime hours by 1.5 times the regular rate and add it to their regular pay to get the total overtime pay.
How to calculate overtime pay for nonexempt employees earning a salary?
While salaried employees are typically exempt from overtime, some salaried employees may still be eligible for overtime pay. To calculate overtime pay for salaried nonexempt employees, determine their regular rate of pay by dividing their salary by the number of hours they are expected to work in a workweek. Multiply the overtime hours by 1.5 times the regular rate and add it to their regular pay to get the total overtime pay.
How to calculate overtime pay for non-hourly compensation?
To calculate overtime pay for non-hourly compensation, such as piece-rate work or non-discretionary bonuses/commissions, determine the employee’s regular rate of pay by dividing their total compensation for the workweek by the total number of hours worked. Multiply the overtime hours by 1.5 times the regular rate and add it to their regular pay to get the total overtime pay.
How do you calculate overtime per day?
Overtime is typically calculated on a weekly basis, not per day. In most cases, overtime pay is only applied when an employee works more than 40 hours in a workweek. However, there may be state-specific laws or collective bargaining agreements that require overtime calculations on a daily basis.
Is overtime calculated by day or week?
Overtime is generally calculated on a weekly basis. The Fair Labor Standards Act (FLSA) requires overtime pay for nonexempt employees who work more than 40 hours in a workweek. However, there may be state laws or employer policies that require overtime calculations on a daily basis.
What is the formula to calculate overtime pay?
The formula to calculate overtime pay is: (Regular Rate of Pay) x (Overtime Hours) x (Overtime Rate) = Overtime Pay. The regular rate of pay is determined by dividing the employee’s total pay for the workweek by the total number of hours worked. The overtime rate is usually 1.5 times the regular rate.