How to Accurately Calculate Overtime

As you likely know, all of your non-exempt employees are eligible for overtime if they work over 40 hours per week in the United States. However, there are some mistakes that employers make when calculating overtime pay. With the Department of Labor audits on the rise, it’s more important than ever that you ensure you are paying your employees correctly for their time worked. If you don’t, you could end up with large fines for noncompliance.

How Does Overtime Work?

If you have an employee that works more than a specified amount of hours in a week, for example, 40 hours, then the additional hours are referred to as overtime. Any overtime hours worked are paid at a higher rate than regular hours.

If an hourly employee works more than a specified number of hours in a week, then they should be receiving overtime pay. The federal government states that if an employee works more than 40 hours a week then they must be paid one and a half times their regular hourly rate. This means that an hourly employee who is working 48 hours a week at $15 an hour would be paid $15 for 40 hours and $22.50 for 8 hours of overtime.

Federal Overtime Regulations

The Department of Labor regulates overtime through the Fair Labor Standards Act. The FLSA requires that an hourly employee who works beyond 40 hours in a workweek must be paid at a higher rate for their overtime hours. This means they must be paid at a minimum of one and a half time their regular pay rate.

Keep in mind that this is the minimum overtime pay rate that a business must comply with. A business has the option to pay their employees at a higher rate and can also start their overtime rate at lower hours per week. For example, some employers pay double time which is twice the normal hourly rate for holidays but this is something that is not required.

State Overtime Regulations

In addition to having to comply with federal regulations, some states have their own regulations for overtime that businesses must comply with. If your state overtime regulation exceeds that of the federal government, then the more strict regulation must be met. If you are not sure of your state overtime regulations, then it is best to check with your state’s labor department to review their labor laws.

Calculating Overtime for Hourly Employees

There are a few rules for you to consider when you calculate overtime pay. Do not include in the 40 base hours special hours such as holidays, sick time, or vacations unless your business specifically includes them in overtime pay.

If an employee is paid different rates throughout the workweek, you must either:

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

Now that you have an understanding of what overtime is and the specific rules and regulations surrounding overtime pay, calculating overtime for hourly employees is fairly simple. Overtime pay is the amount of overtime paid to each employee in a pay period. Here is the formula for calculating overtime pay.

Hourly Pay Rate x 1.5 x Overtime Hours Worked = Overtime Pay

Let’s say that you have an employee who worked 46.5 hours in a single work week and is paid $17 an hour. You would want to first start off by calculating their regular pay.

$17 x 40 hours = $680 (Regular Pay)

You would then want to determine the overtime pay amount.

$17 x 1.5 x 6.5 = $165.75 (Overtime Pay)

As a final step, you would want to add together both the regular pay and overtime pay to get the total pay for the week.

$680 + $165.75 = $845.75 (Total Pay)

As you can see, it’s quite easy to make overtime calculations if you know what federal and state regulations to follow. If you are unsure of the state or federal laws, it is best to speak to an employment attorney or consult with a knowledgeable source who can assist you in determining what rules your business must abide by.

Disclaimer: The materials available at this web site page are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.

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