Check out our free overtime calculator, plus everything you need to know about who is eligible for overtime and what laws impact overtime payments.
This article is part of a larger series on How to Do Payroll.
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. Since there is no 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 at a rate of at least 1.5 times their regular pay for hours worked over 40 in a workweek.
If you need help performing overtime calculations quickly, try using 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 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 rate times the overtime percentage, 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 Fair Labor Standards Act (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 FLSA applies to you, 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 hours 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.
EXAMPLE: Calculating Overtime for Hourly Employees
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 (commission) = $750
EXAMPLE: Calculating Overtime for Non-Exempt Salaried Employees
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).
Calculating 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, then pay 1.5 times that rate for hours worked over 40.
Option 2: Pay 1.5 times the piece rate for any pieces completed during overtime. (States may have variations on this rule.)
EXAMPLE: Calculating Overtime for Piece-Rate Work
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.
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 a 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).
State regulations may have different criteria as well.
Who Is Exempt From Overtime Pay?
In addition to meeting the minimum salary requirement, an employee may be exempt if their primary duties include any of the following:
- Executive: Managing two or more full-time employees
- Administrative: Office or non-manual work related to business operation
- Professional: Work requiring advanced knowledge
- Computer: Computer or program design
- Outside Sales: Selling products or services at the customer’s place of business or home
Contractors, too, are exempt from overtime pay, as are certain occupations. Check out our article on overtime exemptions to learn more.
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.
Federal law says that for hourly and non-exempt salary employees, you must pay 1.5 (time and a half) of the regular salary rate for hours worked over 40 in a workweek. There’s a lot to unpack in this statement before you start doing payroll.
What Is a Workweek?
A workweek is defined by 168 consecutive hours (seven days). It can start at any time or day of the week. You can choose the workweek that best suits your needs. It can even differ between types of employees. However, once a workweek has been decided on, it should stay consistent.
If your employee works a fluctuating workweek, then you may make an arrangement concerning overtime for weeks when your employee regularly works over 40 hours. This often applies to police officers, firefighters, healthcare industry professionals (such as doctors, nurses, other hospital staff, and caregivers), and similar roles. There are some stipulations, however.
Check the FLSA guidelines for more information.
What Constitutes Hours Worked?
Principal work activities are considered part of hours worked, as are preliminary and postliminary activities if they are an indispensable part of the employee’s principal duties.
Included in Hours Worked
Excluded From Hours Worked
What Constitutes a Regular Pay Rate?
The regular pay rate is the number of earnings divided by hours worked. However, this is not just the salary or hourly rate.
Included in Regular Pay:
Excluded From Regular Pay:
Determining Regular Pay Rate From Multiple Pay Rates
Some employees may have different pay scales for different duties such as sales vs back room. In this case, you take the weighted average of the pay earned that workweek and use it to determine overtime, regardless of what pay schedule that overtime was done under.
Piece-rate work is when you pay an employee (not a contractor) a fixed amount for completing a job, like a landscaping project or building a website. They are also subject to overtime. See below for how to calculate overtime.
Many states have different overtime rules. These will exceed the federal rules on overtime pay, so if you follow them, you will be in payroll compliance with federal law. Generally, you follow state overtime pay laws for states where the employee is doing the work, an important consideration when employing telecommuters.
Our state payroll guides break down all laws and regulations that you’ll need to consider on a state by state basis, from minimum wage and overtime regulations to vacation accrual payouts. Check out your state here.
If your employees routinely work overtime and you need help with calculations, consider payroll software like Gusto. It houses all overtime rates, both federal and state, and will automatically calculate employee paychecks based on the time worked. It also updates all overtime rates within the system whenever the law changes so you don’t have to keep up with it. Try it free for 30 days.
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 business.