How Do I calculate Employee 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. 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.  Employees who are eligible for overtime compensation are referred to as non-exempt employees.

Overtime payments are called the overtime premium or the overtime rate of pay. The most usual rate for overtime hours is time and a half, and that is 50% more than employee’s standard wage. It means that for every hour of overtime, you receive an equivalent of 1.5 regular hourly rate.

According to the FLSA rules, nights, weekends or holidays do not require to be paid as overtime (unless the worker would cross the normal hours threshold).

Many employers pay other additions to regular wages for hours done on evenings, weekends or holidays on their own.

State Overtime Regulations

Some states have regulations for overtime that exceed those of the federal government. In this case, the more strict regulation must be met. Check with your state’s labor department to review state labor laws, or check with your employment attorney.

California Overtime Regulations

California requires employers to pay non-exempt employees 1.5 times their regular rate of pay for:

• Hours worked over eight in a workday
• More than 40 hours in a workweek AND
• For the first eight hours of work performed on the seventh consecutive work day in a single workweek.
• Double the regular rate of pay for all hours worked over 12 in a workday, and
• Double the regular rate of pay over eight on the seventh consecutive workday in a workweek.

Calculating Overtime for Hourly Employees Example

Overtime pay is calculated: Hourly pay rate x 1.5 x overtime hours worked. Here is an example of total pay for an employee who worked 42 hours in a workweek:

• Regular pay rate x 40 hours = Regular pay, (+) Regular pay rate x 1.5 x 2 hours = Overtime pay, equals Total pay for the week.

Here are two rules to consider when calculating overtime pay:

1. Do not include in the 40 base hours such special hours as holidays, jury duty, sick time, or vacations.
2. Add the shift differential to the base wage, and then calculate overtime based on this combined figure.

Variable Pay Rates for an Employee

There may be situations where an employee is paid different rates at different times during the work period. This situation may arise when the individual works on different jobs that have differing rates of pay associated with them. In these cases, you have three possible options for calculating overtime, which are:

• Base the overtime rate on the highest wage rate paid during the period
• Base the overtime rate on the average wage rate paid during the period
• Base the overtime rate on the wage rate paid after the 40th hour

Why Some Employees Are Exempt From Overtime

In the U.S., according to the Fair Labor Standards Act (FLSA), certain jobs are excluded from overtime compensation requirements. They are called exempt, and in these cases, employers are not obligated to pay them for overtime.

The FLSA recognizes executive, administrative, professional, outside sales, and some computer employees as exempt. Exempt classification is on a case-by-case basis and is not based on the job title of the employee. There are many requirements to be fulfilled to consider an employee as an exempt one. To qualify for the employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;
• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

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