Do you know how to calculate overtime correctly? If not, you’re not alone. Many people don’t understand how to do it properly, which can lead to much confusion and frustration.
We’ll walk you through the process step-by-step, so you can learn how to get the numbers right every time. We’ll also provide some examples, so you can see how it’s done in practice.
Let’s get started!
What’s Overtime Pay?
Overtime pay is the amount of money you earn for working more than 40 hours in a week. The overtime rate is usually time and a half, meaning you earn one and a half times your regular hourly rate.
Eligibility
Before you learn how to calculate overtime hours, you first need to determine whether you’re eligible for overtime pay.
To do this, you should look at the Fair Labor Standards Act (FLSA). The FLSA is a federal law establishing how much workers must be paid and how many hours they’re allowed to work.
According to the FLSA, non-exempt employees should receive time-and-a-half pay for any hours worked over 40 in a week.
On the other hand, salaried employees (exempt employees) typically aren’t eligible for overtime pay (but there are some exceptions that will be described later in the text).
Exempt Employees
Exempt employees are typically salaried workers who are paid a fixed amount each week, regardless of how many hours they work.
Any job that fits into one of these categories is considered to be an exempt position: professional, administrative, bona fide executive, outside sales, or computer-related position.
Typically, employers don’t have to pay exempt employees overtime. However, there are some exceptions here. Later in the text, we’ll show you how to calculate FLSA overtime if you’re a salaried worker.
Non-Exempt Employees
The majority of non-exempt employees work hourly wage jobs and are entitled to overtime pay.
Part-time workers may also be compensated for overtime if they work longer than their regular shift. In these situations, employers may calculate part-time staff’s overtime pay on a daily rather than on a weekly basis.
How to Calculate Overtime Pay
The most common way to calculate overtime pay is by using the time-and-a-half method, where you multiply the number of overtime hours by your regular hourly rate and then add that amount to your regular pay.
Some employers may use the salary basis test to determine whether or not an employee is eligible for overtime pay.
This test suggests that an employee must be paid a fixed salary each week in order to be exempt from overtime rules. But if an employee’s salary fluctuates from week to week, they may be entitled to overtime pay.
Now, let’s get into more detail.
Overtime Rates for Hourly Workers
How to calculate the overtime rate per hour?
Start by multiplying your regular hourly rate by the number of overtime hours you worked. Then, multiply that number by 1.5 to get your overtime pay rate. Finally, you should add that amount to your regular pay to get your total gross pay with overtime included.
For example, let’s say you worked 50 hours (40 hours + 10 hours overtime) in a week, and your regular hourly rate is $25.
How to calculate your overtime rate?
Multiply your regular pay rate (in this case, $25) by 1.5, and the overtime hours (in this case, 10): $25 x 1.5 x 10 = $375.
Your overtime pay rate would be $375. Now, add your regular pay of $1,000 (40 x $25) to the overtime pay rate to get your total gross pay with overtime included: $1,000 + $375 = $1,375.
Overtime Rates for Salary Workers
As of 2020, salaried workers who earn less than $684 a week are eligible for overtime pay.
Employees with fixed workweeks of 40 hours can use the time-and-a-half formula described above to calculate overtime.
But how to calculate overtime for salary for employees who work fixed workweeks of over 40 hours? The formula is different here, as the overtime hours are partly covered by the weekly salary.
If you’re a salaried employee who works over 40 hours a week, you should:
- Calculate your regular rate. Divide your weekly pay by the total number of hours you work each week to get your regular hourly wage. For example, if you work 44 hours per week and make $2,200 per week, your hourly wage is $2,200/44, or $50 per hour.
- Determine the number of overtime hours that aren’t compensated for by your weekly salary. If you worked 50 hours, the number of overtime hours not compensated by your weekly salary would amount to six (50 hours – 44 regular working hours = 6 hours).
- Calculate your overtime rate. To get the overtime rate, you should multiply your regular rate by one-half of the regular hourly rate ($50*0.5=$25).
- Calculate your overtime pay. Then multiply your overtime rate by the number of overtime hours you’ve worked ($25*6=$150).
- Add your weekly salary to the overtime pay to the number. $2,200 + $150 = $2,350.
Overtime Rates for Holidays
How to calculate holiday pay with overtime?
The first thing you need to know is that there are two different types of holiday: paid and federal. Typically, you won’t get paid if you work on federal holidays, but you’ll receive compensation for paid holidays. Holiday overtime rates vary between time-and-a-half and double-time rates.
For example, let’s say your employer pays the time-and-a-half rate for working on a paid holiday.
If you make $27 an hour and work five days per week, one of which is a holiday, you’ll get a total pay of $1,188 that week (32 regular hours ($864) + 8 hours calculated at the overtime time-and-a-half rate ($324)).
You should also know that holiday overtime rules aren’t the same in every state. For example, in Massachusetts, there are additional provisions relating to holidays known as the Blue Laws.
They regulate the hours of operation for various businesses and impose higher payments (“premium pay”) on Sundays and certain holidays.
Double Overtime
How to calculate double overtime? If your usual hourly wage is $40 per hour, double-time compensation would be $80 per hour. As the name implies, double-time equals twice the usual amount received for regular hours worked.
That being said, double-overtime isn’t required by federal law but may be required by state or local laws.
To keep track of your payments, we recommend calculating overtime pay using a worksheet.
3 Most Common Mistakes When Calculating Overtime Pay
When learning how to calculate gross pay with overtime, make sure you:
- Include all hours. One common mistake is not including all the hours worked when calculating overtime pay. Remember, you must include all hours worked over 40 in a week. This includes any time spent working on weekends or holidays.
- Include all shifts. Another mistake people make is not including shift differentials when calculating overtime pay. If you’ve worked a night shift or a weekend shift, you may be entitled to a higher hourly rate. Be sure to include this when calculating your overtime rate.
- Make sure you’re not misclassified. Some employers try to avoid paying overtime by classifying employees as exempt from overtime rules. If you’ve been misclassified as an exempt employee, you may be entitled to back overtime pay. If you think you’ve been misclassified, speak to an experienced employment lawyer to find out if you’re entitled to overtime pay.
Conclusion
That’s it! Now you know how to calculate overtime for salary employees, as well as hourly workers. We hope you found this information helpful and that it’ll help make your payroll process a little bit smoother.
Remember to consider all the hours worked, shift differentials, and any other factors that may affect the calculation.
FAQs
How to calculate overtime in California?
In California, the overtime rate is time-and-a-half for all hours worked over eight hours in a day or 40 hours in a week. For example, if you make $15 per hour and work 41 hours in a week, your weekly wage will amount to $622.50 ($600 regular pay + $22.50 overtime).
Moreover, all non-exempt employees should receive double their regular pay if:
- They work more than 12 hours in a single day.
- They work more than eight hours on their seventh consecutive working day.
How to calculate overtime in Texas?
The overtime rate in Texas is time-and-a-half for all hours over 40 in a week. So, if you want to calculate your overtime pay, multiply the number of overtime hours by your hourly rate. Now, multiply that number by 1.5, and you’ll get the overtime pay rate.
For example, if you worked for 45 hours and your hourly rate is $30, you’ll end the week with a gross payroll of $1,425 ($1,200 regular pay + $225 time-and-a-half overtime pay).
How to calculate overtime in Nigeria?
Overtime rates in Nigeria are determined by the employee contract/collective agreements.
The law stipulates that an employee can work a maximum of 48 hours a week. Anything beyond that is regarded as overtime and is paid at an overtime rate stipulated in the employee contract/collective agreement.
How to calculate overtime in Excel?
To calculate your overtime rate in Microsoft Excel, follow these steps:
- Open a new spreadsheet.
- In cell A1, enter the number of hours worked (e.g., “45”).
- In cell A2, enter your hourly wage (e.g., “$25”).
- Cell A3 is where you enter the overtime pay rate. Type “=A2*1.5” to get the time-and-a-half rate.
- Insert the following formula: “=IF(A1<40,A1*A2,40*A2)” in cell A4.
- Type “=IF(A1-40>0,(A1-40)*A3,0)” in cell A5. This will calculate how much overtime pay you’ll get.
- In cell A6, type “=A5+A4” to add regular pay to the overtime pay.
Now you know how to calculate overtime using Microsoft Excel.
