Under the FLSA, overtime pay is additional compensation (i.e., premium pay) that employers must pay to nonexempt employees who work more than 40 hours in a workweek. As previously stated, the federal rate is time and one-half the regular rate of pay, however, states that have their own laws may require daily overtime payments or double time premium pay. The federal Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees 1.5 times their “regular rate of pay” for all hours worked over 40 in a workweek. Some states require overtime pay in additional circumstances and at different rates. Below, we cover how to calculate overtime in accordance with federal rules. Sometimes nonexempt employees who are normally paid a fixed hourly rate work certain hours, usually at undesirable times, which grants them additional hourly pay.
- If an employee works more than a specified number of hours in a week, the additional hours are called overtime.
- To be considered exempt from overtime pay, an employee must meet all the criteria for an exempt employee.
- Setting and then enforcing clock-in/clock-out regulations communicates to your employees that you are serious about controlling costs and maintaining an organized and efficient payroll system.
- To accurately calculate overtime pay, you must first determine the employee’s regular rate of pay.
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. Be sure to review all federal, state, and local requirements — or consult with a professional — before calculating your business’s overtime. There is, however, another formula that yields the same overtime rate.
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This alternate formula can be useful in certain circumstances, which is why it’s important to know how to use it. Knowing how to calculate overtime correctly can have a significant impact on your business’s work schedule and budget. Review your pay practices to ensure that you are calculating and paying overtime in accordance with state and federal laws.
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. Except for certain states that require premium pay daily, overtime is calculated by the workweek. 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.
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. Overtime isn’t strictly based on an hourly or salary basis of pay. Certain types of other compensation, such as the following, must be included in overtime calculations. The most common exemptions include executive, administrative, professional, outside sales or computer-related jobs. The best way to earn additional income with overtime is to work hard and be a productive employee at your job. Your employer will see that you are one of the best performers in the job and want to give you more work.
Calculate Overtime Pay for a Salaried Non-Exempt Employee
It’s calculated by dividing the total pay for employment in any workweek (except statutory exclusions) by the total number of hours actually worked. To make matters even more complex, businesses must comply with not only the FLSA, but also the wage and hour laws in state and local jurisdictions. When these regulations differ, employers have to apply the overtime pay rate that is most favorable to the employee. 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. An employee’s regular pay rate is based on the amount of calculated earnings divided by the number of hours worked. This includes a base rate and any additional compensation such as commission or non-discretionary bonuses.
The calculation is different here because any overtime hours are already partially compensated for by the weekly salary. 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. Under the FLSA, any non-discretionary bonuses or commission earned by a nonexempt employee must be factored into their regular rate of pay.
Calculate Overtime Pay for Hourly and Salaried Employees
In addition, a “highly compensated employee” (HCE) who makes $107,432 or more per year is not eligible for overtime either. 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 Regular Rate is the hourly payment for Straight Time—non-overtime hours. 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. For regular hours, tipped workers’ salaries will comprise of a basic cash wage plus any tips. If this combined amount does not reach the highest of all applicable federal, state or local minimum wages, then employers are responsible for making up the difference.
Further, the calculation for salaried employees differs depending on the number of hours per week the salary is meant to compensate for. 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. 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. Salaried employees are typically exempt from overtime if their weekly income is over a specific amount. 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. Note that certain states have their own methods for calculating the regular rate of pay for nonexempt employees who are paid a flat sum bonus.
The two methods are similar, yet have different outcomes on the employee’s wages. Save countless hours scheduling employees while controlling quality of their work and reducing cost of labor. Chances are, those part-time team members are nowhere near accumulating enough hours to push them beyond the 40-hours-per-week mark. If one of your regular pressure washers calls in sick at the last minute, you can ask one of the part-time lawnmowers to come in instead of asking a full-time team member to stay late and work extra. With a process like this, employees no longer have to physically be at their place of work to view the schedule.
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. For this example, let’s assume your employee earns $500 a week and salary covers all hours worked, no matter how many hours the employee works. Our software even allows you to export timesheets for streamlined wage payment every time (whether you DIY or outsource it to a payroll processing company). 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. Setting and then enforcing clock-in/clock-out regulations communicates to your employees that you are serious about controlling costs and maintaining an organized and efficient payroll system.
This extra pay is merely an incentive (or reward) for working days (or hours) that the employee would usually spend off. It’s easy to see that trying to figure out how to calculate overtime for each employee can be a confusing and difficult task. 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 additional help understanding overtime rules, check out Paycor’s Department of Labor solution page, which offers you peace of mind by providing everything you need in one place. Get access to Paycor’s overtime resources, including an overtime calculator.
Calculating overtime for multiple pay rates
Here, you’ll learn the ins and outs of comp time, who qualifies to receive… One of the best ways to get the schedule into your team’s hands with plenty of time to spare is to post it in the cloud. An advanced schedule maker, like Inch, makes it easier to do this.