How to Calculate Overtime Easily with Software

The amount of overtime employees earn and the rate at which they’re compensated for it depends on federal overtime laws, state laws, and company policies. Therefore, correctly calculating overtime pay is important both to ensure your employees are fairly compensated and to avoid getting into legal trouble. Doing it right the first time saves you from creating additional headaches as you scramble to fix your mistakes come payroll.

Broadly speaking, there are two ways to calculate overtime.

1. Manually. Spreadsheet software like Excel have sufficient functionality to handle the math associated with determining overtime pay. There are also overtime calculators you can find online. For small companies, this may be sufficient for your needs. However, inputting all the relevant information into spreadsheets is time-consuming and prone to human error.
   
   
2. Using software. You can use time tracking and payroll software to accurately track hours worked, calculate overtime, and pay out your employees correctly. Unlike spreadsheets, software does have a cost associated with it, but you’re saving time and you’re also greatly reducing the risk of any costly overtime calculation errors.

First, we’ll review how to calculate overtime using manual methods, like an Excel spreadsheet. This option is “free” in that it can be done with software you’ve already paid the licensing fee for, but it can get expensive if you factor in time that could have been spent on other job duties. Plus, there’s the risk of human error, which can result in payroll mistakes and even legal ramifications.

After that, we’ll go over a faster and more accurate method: using software. We’ll take a look at how Buddy Punch, our time tracking and payroll software, can be used to track hours worked, calculate overtime, and streamline payroll.

Interested in learning more about Buddy Punch? Start your free 14-day trial or schedule a one-on-one demo.

How to Calculate Overtime Manually

Information You’ll Need

If you’re going to attempt calculating overtime in a spreadsheet, here’s all the information you’ll need to track down first:

• Wage laws: Federal law dictates overtime pay must be 1.5 times workers’ usual hourly pay. Some states, including California, require additional pay, and local labor laws may add stipulations. They also include guidance on what constitutes hours worked overtime. Confirm all pertinent legal information before you begin; if you’re not sure where to find it, start with the U.S. Department of Labor or your state’s Department of Labor.
  
  
• Company policy: Some companies award premium pay for overtime based on factors like seniority. Make sure you’re aware of all possible overtime bonuses offered by your company so you can account for it.
  
  
• Hourly vs. salaried: Calculating overtime is a different process for hourly employees than for salaried employees. Make sure you know how your employees are being paid so you use the right formulas.
  
  
• Rate of compensation: Whether they’re hourly or salaried, you need to know how much employees are being paid for straight time (non-overtime work hours).
  
  
• Additional pay: Nondiscretionary bonuses must be factored into employees’ regular rate of pay. Under the Fair Labor Standards Act (FLSA), bonuses are considered nondiscretionary if they’re based on a predetermined formula, for quality and accuracy of work, announced to employees to induce them to work more efficiently, attendance bonuses, or safety bonuses.
  
  
• Tips: If tips are considered part of a worker’s wages, those should also be included in employees’ regular rate of pay.
  
  
• Hours of overtime: Last but not least, it’s necessary to know the total overtime hours each employee has earned per pay week. This includes knowing their baseline contracted hours of work (e.g., a 40-hour workweek for full-time employees).

If you’re missing any of this information, you can’t calculate overtime just with a spreadsheet.

Equations for Manual Calculations

Once you have the information you need, here’s how to calculate overtime for employees depending on how they’re compensated.

Salaried Pay

Since an employee’s overtime is calculated based on workweeks, if your employees’ salaries are paid over time intervals greater than a week, the first step is to convert it to a weekly salary. For a monthly salary:

Weekly salary = Monthly salary x 12 months/52 weeks

For a half-month salary:

Weekly salary = Half-monthly salary x 24 half-months/52 weeks

For a yearly salary:

Weekly salary = Yearly salary/52 weeks

So, if an employee is paid $50,000 a year, their weekly salary is $961.54/week. If they’re instead paid $5,000/month, their weekly salary would be $1,153.85 per week.

Note: the FLSA designates certain white collar employees exempt from overtime compensation. If your employee’s weekly salary is above $684, refer to the FLSA to learn about additional factors that determine their status. If their weekly salary is below $684, they’re nonexempt employees. However, this only refers to federal legal requirements, not to state, local, or company policy.

Once you have the weekly salary, you need to convert it to the usual hourly rate. Note that this rate will vary based on hours worked, so it needs to be calculated for each pay week in which the employee worked overtime according to the formula:

Usual hourly rate = weekly salary/hours worked

For example, let’s say an employee receives a $500/week salary. If they work 42 hours in a week, their usual hourly rate is $11.90. If they instead work 45 hours, it’s $11.11. Caveat: employees’ usual hourly rate cannot legally fall below minimum wage; if it does, you’ll need to make up the difference (equations not covered here).

To find the total they’re due for overtime in addition to their regular wages, the equation is:

Overtime pay = [1 - overtime multiplier] x overtime x usual hourly pay

To continue the above example, let’s say that according to company policy, employees receive the federal minimum 1.5 multiplier (i.e., one and a half times their usual wage for overtime). For the 42-hour week, if they have a 40-hour workweek, the employee is due an additional $11.90 for their two hours of overtime, making their weekly total compensation to $511.90. For the 45-hour week, they’re owed an additional $27.78, for a weekly total of $527.78.

Hourly Pay

For employees with a set hourly rate and no sources of additional pay like tips or nondiscretionary bonuses, the formula for determining overtime pay rate is simply:

Overtime pay rate = overtime multiplier x usual hourly pay rate

For example, if an employee’s straight time pay is $10 per hour, they didn’t receive nondiscretionary bonuses, and they’re compensated for overtime at the federal minimum of 1.5 times their regular hourly rate, they should be paid $15 per hour for overtime.

If instead you want to find the total amount of overtime wages they’re due in addition to their base pay, the equation is:

Overtime pay = [1 - overtime multiplier] x overtime x usual hourly pay

To continue the above example, let’s say the employee in question worked exactly one hour of overtime. Multiplying their hourly pay of $10 by 0.5 gives $5 in overtime wages, and this $5 (one-half of $10) added to their base pay of $10 gives the $15 of compensation they’re owed per hour of overtime. If instead they worked two hours of overtime, earning $20 at their usual pay rate, they’re due an additional $10 of overtime pay.

Now, let’s say the employee, due to seniority, is instead paid double their usual pay for overtime. In this case, the overtime multiplier is 2, and 2-1 = 1. Therefore, the overtime pay due to them is $10, bringing their total pay for that hour to $20.

Hourly Pay with Nondiscretionary Bonuses

If your employees receive nondiscretionary bonuses (or tips are considered part of their wages), that money needs to be factored into the usual hourly pay rate for the pay week in question. The formula for that is:

Usual hourly pay rate = (weekly pay + nondiscretionary bonuses)/hours worked that week

And:

Weekly pay = hourly wage x hours worked that week

So, the formula can also be written:

Usual hourly pay rate = ((hourly wage x hours worked that week) + nondiscretionary bonuses)/hours worked that week

Let’s say the employee is normally paid $10 an hour, they worked 46 hours during the pertinent pay week, and they also received a $10 bonus for workplace safety and a $15 holiday pay incentive. Their usual hourly pay rate becomes (($10 x 46) + $10 + $15)/46, or $10.54/hour. This should be used as the “usual hourly pay rate” in the formula:

Overtime pay = [1 - overtime multiplier] x overtime x usual hourly pay

So, at a rate of 1.5 pay for overtime, having worked 6 hours of overtime (assuming a 40-hour workweek), the employee is due an additional $31.62 of overtime pay.

You’ll need to repeat this process for every employee who works overtime every single pay period, and then you need to get those numbers into your payroll system and into your legal records. This may be feasible for small businesses, but it’s time-consuming and inefficient.

Next, we look at a much easier solution: using software to calculate overtime. Specifically, we look at using Buddy Punch, our time tracking software.

You can use Buddy Punch as:

• A scheduling tool
• A clock in and out tool
• A time tracking tool
• A payroll provider (you can also keep your current payroll provider and integrate it with Buddy Punch)

Below, we look at this in more detail, starting with how Buddy Punch can take the pain out of calculating overtime.

How to Calculate Overtime with Buddy Punch

Our cloud-based time tracking software makes every facet of handling overtime easier:

• Time tracking, including regular time, overtime, and paid time off: Your employees clock in and out using Buddy Punch, either from a designated kiosk or from their own mobile devices. Set up workweeks and overtime type for your team and their overtime will automatically be tracked and calculated. You can also set up automatic alerts to let you know if employees are nearing overtime.

• Payroll: Buddy Punch can directly calculate payroll based on timecards, or you can export this data into other compatible payroll systems — including overtime reports.

• Scheduling: Drag-and-drop scheduling in calendar view lets you assign shifts based on employee availability, and it also has shift-trading. These features let you stay organized, preventing the need for unexpected overtime.

Keep reading to learn more about how Buddy Punch handles overtime, or visit our site to start your free 14-day trial or schedule a one-on-one demo.

Buddy Punch’s Built-In Overtime Calculator

Since Buddy Punch tracks hours worked, it also tracks the total number of hours of overtime. Based on that, it automatically calculates how much pay your employees are due based on over a dozen overtime rates. For instance, the following chart shows overtime and double time based on an employee’s regular rate:

Buddy Punch also lets you export overtime reports of multiple employees based on pay periods, facilitating accurate recordkeeping.

Automatic Workweek and Overtime Type

You can set up automatic workweeks and overtime in Buddy Punch. Over a dozen overtime types are included, and you can create custom overtime rules as needed.

Once you’ve assigned an overtime type to an employee, their overtime will be automatically tracked and calculated based on the rules you’ve set — much simpler than redoing the calculations every pay period.

Overtime Alerts

Sometimes overtime is necessary, but sometimes it’s a scheduling mixup. Buddy Punch lets you set up overtime alerts: notifications that an employee is nearing their weekly quota of hours.

This gives you the opportunity to adjust their schedule accordingly.

Other Timesaving Features

Buddy Punch is a powerful tool for tracking and calculating overtime, but that’s not all it does. It can also help you with time tracking, payroll, and scheduling.

• Time tracking: Buddy Punch lets employees clock in and out from their own devices or from a designated kiosk. You can also enable punch rounding, automatic breaks, and PTO accrual. Buddy Punch gives the option to increase accountability through tools like IP Address Locking, Photos on Punch, and Geofencing, ensuring hours reported are hours worked.

• Payroll: You can import employee timecards directly into payroll, enabling accurate and efficient calculations. This includes automatic tax withholding. In addition, employees are able to upload their preferred payment method via self-service portals, including direct deposit.

• Scheduling: Using Buddy Punch’s drag-and-drop calendar interface, you can quickly and easily assign shifts based on employee availability. And when life interferes with plans, the shift trading feature lets employees quickly find someone to cover for them.

Time Tracking

Buddy Punch is compatible with Microsoft, Apple, Android, and iOS devices; depending on what works best for your company, you can set up a clock in kiosk or have employees log in and out from their phones, tablets, or computers.

Based on their reported work hours, Buddy Punch automatically generates timecards for each employee. Admins and managers can immediately log in to review employee hours.

Punch Rounding

In the settings, you can choose to have employees’ clock in and clock out times rounded to the nearest interval of your choosing; for instance, rounding to the closest 5-minute interval.

This fosters transparency and accountability by applying consistent rules to everyone, and it also reduces the odds of employees accidentally racking up extra hours in increments of a few minutes.

Automatic Breaks

To keep employees from having to repeatedly clock in and out throughout the day, increasing the odds of human error, you can set up breaks that will automatically trigger once employees have worked a certain number of hours each workday.

For instance, you could use this feature to ensure everyone gets their lunch break properly accounted for as a break (and not as overtime).

PTO/Accrual

Buddy Punch doesn’t just track time worked; it can also track time off. Specifically, Buddy Punch lets you manage Paid Time Off (PTO)

You can add PTO manually or set up customizable rules for how employees accrue PTO. Employees can then request PTO through their self-service portals.

Increase Employee Accountability (and Keep Accurate Records)

When it comes to tracking time and overtime, Buddy Punch has several accountability tools to make sure the work hours employees are reporting are an accurate reflection of hours worked.

IP Address Locking

You can restrict employees to logging in from set IP addresses (for instance, the one corresponding to their workplace).

This ensures employees are logging in when they get to work rather than while they’re still in-transit (or somewhere else entirely).

Photos on Punch

Most devices have webcams, and with Photos on Punch enabled, employees must take a picture of themselves when they clock in.

This facial verification prevents dishonest reporting practices like buddy punching (where one employee punches in for another employee).

Geofencing

If employees need to be at a specific location to do their job, one accountability option is geofencing.

For this feature, you designate the GPS coordinates of a location and a geographical radius from it. Employees must be within the radius to clock in. Much like with IP Address Locking, this prevents workers from clocking in before they reach their work site.

Payroll

If you already have software for payroll, odds are Buddy Punch can integrate with it. But if you don’t, Buddy Punch itself can fill the gap, efficiently and accurately calculating payroll based on hours worked — even overtime.

The results can easily be exported for sharing and record-keeping.

Taxes

Buddy Punch automatically calculates and files US taxes at the state, local, and federal level. These can be viewed in the “Documents” menu.

It also sends relevant tax forms such as W2s to workers.

Payment Method

Employees can set up their preferred payment method, including direct deposit, within their self-service portal.

In the case of direct deposit, Buddy Punch will automatically authorize payment once payroll is submitted.

Scheduling

Creating a good work schedule can prevent the need for overtime, and Buddy Punch’s intuitive drag-and-drop interface makes scheduling easier than ever.

You can create schedule templates, and editable shift parameters include time, location, and employee.

Employee Availability

Employees can report their availability through the self-service portal.

This availability is visible when you create schedules, preventing you from booking someone for hours they know they can’t work. It also helps make sure you’re booking them for their regular hours, not for overtime.

Shift Trading

Sometimes life happens, and when it does, employees can use Buddy Punch to request a shift trade. Other employees can volunteer to cover the shift, pending admin approval — a useful tool to keep overeager employees from leaping feet-first into overtime work.

What Customers Are Saying

On Capterra, a leading software review site, Buddy Punch has 4.8/5 stars based on 850+ reviews.

Here’s what customers are saying about its overtime features:

“…There is an app I can use on my phone, it’s also easy to see how hours are calculated as well as overtime etc….”

Click here to read the full review. 

“”It’s so easy to clock in and out”
Overall: The ability to check where I am at the end of the week and how many hours I have left, so I won’t go into overtime….”

Click here to read the full review. 

“…It is so easy to use on both the employer and employee side, and has wonderful data features, as well as sends reminders when pay period reports are ready and when an employee may go over overtime….”  

Click here to read the full review.

To learn more about Buddy Punch and how it can simplify how you calculate overtime (and your entire time tracking and payroll process), you can:

• Sign up for a free 14-day trial
• Request a one-on-one demo