When learning how to calculate overtime for your employees, you have to take into account exceptions and considerations, such as federal and state overtime pay laws. According to the Fair Labor Standards Act (FLSA), you must pay at least 1.5 times the employee’s regular pay for hours worked over 40. Since there is no legal limit on the number of hours employees who are 16 or older can work in a workweek, you must determine whether you have to pay them overtime or not.
If you need help performing overtime calculations quickly, use our overtime calculator. By default, it calculates overtime pay at the time-and-a-half rate, but you can overwrite it if you happen to live in a state that has different rules, like double-time pay.
We’ve broken down the process of calculating overtime for your hourly and salaried employees into five easy steps listed below. Keep in mind that some states have different rules; here, we discuss federal overtime only.
Step 1: Calculate Regular Pay
For hourly employees, calculate the number of hours worked times the pay rate. Add any extra additional compensation (like bonuses) and divide that by the number of hours worked.
For salaried employees, start by translating the salary into its workweek equivalent. You can do this by dividing the annual salary by 52 (alternatively, take the paycheck’s salary, multiply by the number of paychecks in a year, then divide by 52).
Then, take that amount, add any additional compensation for that week, and divide it by the number of hours worked that week.
Step 2: Check Overtime Rate
Check with your state to verify the overtime rate (state rules are lower in this article)—is it 1.5 times regular pay for all hours worked over 40 in a week or more? Be sure to note whether you need to calculate the daily or weekly overtime, double time vs time-and-a-half, and the maximum number of hours worked before overtime applies.
The overtime rate will be the regular hourly pay times the overtime rate, such as 1.5 or 2. You can always pay more than the legal minimum. If you have payroll software, it may already have those tables as part of its program, so you don’t have to do the research.
Step 3: Determine Total Overtime Hours Worked
For anyone falling under the FLSA, which defines overtime pay for the nation, you must count hours over 40 in a workweek, even if your state has a higher threshold. The higher number is for FLSA-exempt businesses still under state law. For example, Minnesota requires overtime for hours worked beyond 48 in a workweek. If the FLSA applies to you, then you must start overtime at 40+ hours. Otherwise, you may start at 48+.
Step 4: Calculate Overtime Pay
Multiply all overtime hours worked by the overtime pay rate. Under federal law, the total pay would be (regular pay rate x 40) + (extra hours x regular pay rate x 1.5).
Step 5: Add Overtime Pay to Regular Pay Plus Other Compensation
Once you have the pay for the hours worked (including overtime), add the additional compensation, such as bonuses or commissions. If you need help with other payroll calculations, check out our guide on how to calculate payroll.
Here are a few examples of how to calculate overtime to give you a clearer picture.
Jorge worked 50 hours last week, which includes 10 hours of overtime, and earned an additional $200 in commissions. His regular hourly rate is $10 per hour.
His regular salary for the week is $10 x 40 = $400
His overtime rate is $10 x 1.5 = $15, making his overtime pay $15 x 10 = $150
Thus, his salary for the week is: $400 + $150 + $200 (commissions) = $750
Moira makes $30,000 a year, which translates to $576.92 a week. Normally, she is paid monthly and is getting a bonus of $200 this month. Last week, she worked 45 hours. (Note: The numbers are rounded.)
First, we prorate the bonus to a weekly amount, since the bonus is for the entire month.
$200/4 = $50
Next, we determine her regular pay for the week: $576.92 + $50 = $626.92
Her regular pay rate is $626.92/45 = $13.93
Her overtime rate is $13.93 x 1.5 = $20.90
Her overtime pay is $20.90 x 5 = $104.50
Rather than calculating her salary for the week, we would add $104.50 overtime pay to her monthly paycheck (plus any overtime she earned in other weeks in that pay period).
Overtime for Federal Piece-rate Work
When you pay employees by piece rate, you have two options for calculating overtime.
Option 1: Add the total piece rate earned by the employee, divide it by the number of hours worked to get the rate, and then pay 1.5 times that rate for hours worked over 40.
OR
Option 2: Pay 1.5 times the piece rate for any pieces completed during overtime. (States may have variations on this rule.)
Jenny worked 50 hours to complete two websites, one at $600 and one at $400. She finished the $400 website during overtime. Under the first option, her pay is $600 + $400 = $1,000.
Her regular rate is $1,000/50 = $20/hour
Her overtime rate is $20 x 1.5 = $30/hour
Thus, her final pay is her piece rate pay plus overtime: $1,000 + ($30 x 10) = $1,300.
Under the second option, Jenny earns overtime for the $400 website, so $400 x 1.5 = $600.
Her pay for the week is $600 + $600 = $1,200.
Overtime for Multiple Rates of Pay
Often called blended overtime pay, this calculation is used to pay employees who work shifts at different rates of pay during the same pay period. Workers in construction, for example, may have different pay rates based on the work they’re doing at different job sites. To calculate their rate of pay when working overtime, use the blended formula.
Blended overtime pay = ((role 1 hours x role 1 base wage) + (role 2 hours x role 2 base wage)) / (role 1 hours + role 2 hours)
Note: If an employee works 28 hours in one position and 15 in another in the same week, they’re still entitled to overtime pay of three hours because the total hours worked exceeds 40.
Consider Lucia, an on-site construction worker whose skills cover multiple tasks. Her employer often assigns her different roles at different job sites during the same week. This week, Lucia worked 45 hours: 30 hours as a carpenter at $20 per hour and 15 hours as an electrician at $30 per hour.
Blended overtime pay = ((30 hours x $20) + (15 hours x $30)) / (30 + 15)
Blended overtime pay = ($600 + $450) / 45
Blended overtime pay = $23.33 per hour
So we take Lucia’s standard wages plus overtime wages to get her total pay for the period.
Total pay = (30 hours x $20) + (15 x $30) + (5 x $23.33)
Total pay = $1,166.65
Who Gets Paid Overtime?
The simplest answer is anyone working over 40 hours in a workweek is owed overtime. However, there are exceptions. To be exempt from overtime, your employees need to fit into specific criteria based on their salary and work responsibilities or duties.
As of January 2020, salaried employees who earn over $684 per week, or $35,568 annually, may be exempt from overtime requirements. Also, the threshold for highly compensated employees is now $107,432 (of which $684 must be paid weekly on a salary or fee basis).
Some states have higher minimum salary requirements to be exempt from overtime pay.
Who Is Exempt From Overtime Pay?
Having an employee make over the rate of $684 per week does not automatically make the employee exempt from overtime. There are five job duties that the FLSA allows exemptions for, provided that the employee first meets the minimum salary requirements.
Make sure you take this process seriously. If you mistakenly withhold overtime pay for an employee, you could face serious consequences. When in doubt, seek advice.
Overtime Pay Laws
Understanding how federal and state overtime pay laws apply to your business is key for properly calculating overtime. Click the tabs below for more detailed information.
Calculating Overtime Frequently Asked Questions (FAQs)
Outside sales duties refer to roles where the primary task is making sales or obtaining orders, contracts, or clients away from the employer’s place of business. These employees often have a certain level of autonomy and spend most of their time on the road or at clients’ locations. Examples include traveling sales representatives who visit potential clients to pitch products or services, territory managers who oversee sales in a specific geographic area, and real estate brokers who show properties and meet with clients outside of an office setting.
Focus on the employee’s primary duties. What’s the most important function? What do they spend most of their time doing? If an employee spends more than half their time performing executive functions, even though they also perform other duties, they may still qualify for the executive exemption, provided they also meet the salary requirements. The key is to look at what duty is central to the employee’s job.
Yes, provided they aren’t exempt. The rule is any nonexempt employee who works over 40 hours in a workweek receives overtime pay. Part-time employees work 35 hours or less per week but there may be occasions when they work more. If those extra hours put them over 40 hours for a single workweek, then you’ll need to pay them overtime.
If you don’t pay overtime when it’s due, you could face back pay awards, fines, and lawsuits. The Department of Labor takes overtime violations seriously and may conduct audits to ensure compliance. If they find you’ve not paid overtime, they can require you to pay the wage you owe, plus back taxes for both the employee and your business. Employees can also sue employers for unpaid overtime.
Overtime pay for remote employees follows the same rules as in-office workers. However, you need to pay close attention to state laws, which may require overtime pay at different rates or different calculations than federal law or the state law where your business is located. Remember, you need to pay overtime rates per the law where your employees do the work, so if they’re working remotely, it’s their home state’s laws that apply.
No. Overtime laws protect employees and these rights cannot be waived. Any agreement that purports to do so will likely be viewed as unenforceable.
Other Payroll Calculators
- Gross Pay Calculator
- FICA Tax Calculator
- FUTA Tax Calculator
- Time Card Calculator
- Employee Mileage Reimbursement Calculator
Bottom Line
It’s important to understand and follow overtime rules for both the federal and state governments. If you do not pay accurately over time, you will need to pay it in back pay and may be subject to penalties. While the overall rule is simple, there are different exceptions and exemptions, and in some states (like California and Colorado), rules can get complex.
Most payroll software can handle overtime calculations and are usually updated with the latest rulings. Check out our guide on the best payroll software to find one that works for your small business.
