The Fair Labor Standards Act (FLSA) requires that employees who aren’t exempt get paid overtime when they work over 40 hours in a workweek. Overtime is paid at a rate of 1.5 times the worker’s straight-time pay rate.
You calculate overtime pay by multiplying the straight-time rate of pay by 1.5 and multiplying that rate by the number of overtime hours worked.
I’ll explain how to calculate overtime correctly and unpack some of the common mistakes employers make when calculating overtime.
How To Calculate Overtime in 4 Simple Steps
I know calculating overtime pay can get tricky if you’ve never done it before—and even if you have. Follow this step-by-step guide with examples.
1. Find Straight-Time Rate Of Pay
Many people who are eligible for overtime get paid hourly. To calculate overtime, you need to know your worker’s regular rate of pay. For example, if a person makes $25 per hour, their regular rate of pay is $25.
This works differently for salaried workers, who can also sometimes be eligible for overtime. Professionals who qualify for an administrative exemption need to make at least $684 per week to be exempt from overtime, as an example. Someone earning a salary of $30,000 a year would not be exempt from overtime because their weekly pay would equate to about $577.
To find a salaried person’s straight-time rate of pay—or the amount they earn per week based on their salary—you divide their annual salary by the number of agreed-upon annual hours they work. In most cases, this is 2,080, which covers 40 hours per week for the entire year (52 weeks x 40 hours).
Example: Jane makes $30,000 a year for an agreed-upon 40 hours a week. 52 weeks x 40 hours = 2,080 hours. We need to divide Jane’s salary, $30,000, by 2,080 hours to get her straight-time rate of pay, which equals $14.42.
$14.42 is the rate we’ll use to determine Jane’s overtime rate in the next step.
2. Find the Overtime Rate of Pay
For an hourly employee, multiply their regular rate of pay by the overtime rate modifier, 1.5, to determine their overtime rate.
Example for an Hourly Employee: Multiply a regular rate of $15 per hour by 1.5 to get an overtime rate of $22.50.
In Jane’s case, we needed to find her straight-time pay rate first before calculating her overtime rate. Remember, Jane’s straight-time rate is $14.42.
Example for Jane, a Non-Exempt Salaried Employee: Multiply Jane’s straight-time rate of $14.42 per hour by 1.5 to get her overtime rate of $21.63.
3. Calculate Overtime Hours and Pay Rates
Now, we need to separate the number of regular hours from the number of overtime hours an employee worked.
The FLSA states that any hours worked past 40 in one workweek must be paid at the overtime rate. Some states do this a bit differently, like requiring overtime to be paid for hours worked past eight hours in one day, but I’ll explain that more later in this guide. For now, we’ll stick to FLSA requirements.
Example: Jane gets paid biweekly. During the last pay period, she worked 45 hours the first week and 42 hours the second week. Combine the regular hours together (40 + 40 = 80) and add up her overtime hours (5 + 2 = 7). Jane has 80 hours of regular time and 7 hours of overtime for that pay period.
4. Combine Regular and Overtime Pay
Finally, you use the regular and overtime hours and pay rates to determine the worker’s pay.
Example: Jane had 80 regular hours paid at her straight-time rate of pay of $14.42. Multiple 80 by $14.42 to get her straight-time pay of $1153.60 for the two-week pay period.
Next, multiply Jane’s overtime rate of $21.63 by her seven overtime hours, giving her overtime pay of $151.41.
Now, add the total pay amounts together, $1153.60 + $151.41, to get Jane’s total for the pay period, $1305.01.
Common Questions About Calculating Overtime
Do Employees Make Overtime On Top Of Differential Pay?
Yes, employees who are eligible for overtime still earn overtime on top of their differential pay.
Differential pay is variable compensation that gives employees a different rate for specific tasks or during specific times.
For example, George’s company might offer a shift differential of $3 to George when he picks up a weekend shift that isn’t typically required in his schedule. This means that George earns $3 extra on top of his regular pay for the hours worked during that extra weekend shift.
How does this work when overtime is involved?
Let’s say George already worked 40 hours this week and picked up a weekend shift for 5 hours, which is eligible for his shift differential pay of $3 per hour. He regularly earns $20 per hour, so his shift differential bumps his pay to $23. These five hours are also overtime pay because they are past 40 hours.
First, find George’s base pay rate. Multiply 40 hours by his regular rate of $20 ($800) and 5 hours by the shift differential rate of $23 ($115). Add them together to get a base pay of $915.
Now, divide the base pay of $915 by the total number of hours worked, 45, to get George’s straight-time pay rate: $20.33.
Multiply $20.33 by 1.5 to find the overtime pay rate: $30.50.
Multiply George’s overtime pay rate, $30.50, by his overtime hours, 5, to get his overtime pay: $152.50.
Add his overtime pay ($152.50) to his base pay ($915) to get his total pay of $1,067.50.
Do Employers Have To Pay Overtime Hours That Were Not Approved?
Yes, employers must pay for all overtime hours worked, even if they weren’t approved first.
The FLSA states:
Work not requested but suffered or permitted to be performed is work time that must be paid for by the employer.
By using the term “suffered or permitted,” the FLSA includes any type of work under its umbrella of employment. Whether your employee chooses to work overtime or not, and whether the work was technically permitted or not, it’s still compensable in the eyes of the law.
If your employees are working overtime that wasn’t approved, there’s likely an issue with your policies or your management. Either case needs to be fixed as soon as possible to avoid extraneous overtime costs.
Additionally, always calculate all hours your employees work, not just approved hours.
How Do I Calculate Overtime For An Employee Paid a Day Rate?
Employees paid a day rate rather than hourly can still be eligible for overtime.
To calculate overtime pay for this type of employee, you’ll need to come up with a straight-time pay rate, just like we have in previous calculations.
Say an employee gets a day rate of $200. They worked four days this week for a total of 48 hours. Here’s how to calculate overtime using their day rate:
- Multiply the day rate by the number of days worked: $200 x 4 = $800.
- Divide $800 by 48 hours worked to get the straight-time pay rate: $16.67.
- Multiply $16.67 by 1.5 to get the overtime pay rate: $25.01.
- Multiply the overtime rate by the number of overtime hours: $25.01 x 8 = $200.08.
- Add the overtime pay to the regular pay: $200.08 + $800 = $1,000.08.
Can I Average Hours Between Workweeks When Calculating Overtime?
No, you can’t average hours between different workweeks to calculate overtime.
The FLSA distinctly says that overtime pay must be paid for hours worked past 40 hours during a workweek, and you can’t combine hours from different workweeks. You can’t add 32 hours from one week during a pay period to 48 hours from another and call it a draw because they total 80 hours. The employee must be paid for 8 hours of overtime for the week they earned those hours.
Let’s look at a couple of examples:
- Kim gets paid biweekly. She worked 50 hours the first week of the pay period and 38 hours the second week. Kim is eligible for 10 hours of overtime based on the first week of the pay period. If you combined them, you’d only pay for eight hours of overtime, which shorts her by two hours.
- Brian gets paid monthly. He worked 44 hours, 32 hours, 42 hours, and 36 hours for the four weeks of the current pay period. Brian is eligible for six hours of overtime for this pay period. However, if you combined his hours and averaged them, he’d have 38.5 hours per week, shorting him from getting paid for any of his overtime hours.
How Do I Calculate Daily Overtime, Like California Requires?
Some states have overtime laws that differ from FLSA’s regulations. For example, California has a daily overtime law requiring employers to pay workers overtime for any hours worked past eight in a day.
In this case, you’ll need to track your workers’ daily hours, not just weekly hours.
If Dan works eight hours on Monday and Wednesday but works 10 hours on Tuesday and Thursday, Dan earned four total hours of overtime based on his Tuesday and Thursday hours, even though he only worked 36 hours for the week.
Once you’ve figured out how many overtime hours someone has, the actual overtime pay calculation process is the same.
Miscalculated Overtime Leads to Serious Problems
I can’t stress enough how important it is to get overtime calculations right. Your payroll compliance depends on it. Plus, overtime miscalculations can lead to underpaying employees—a potential legal problem—or overpaying employees, which can be extremely costly to the company.
If you don’t already, consider using payroll software that can track overtime hours and calculate overtime pay for you. It’s one less thing you’ll need to worry about, and you can make sure it’s done the right way.
The best payroll software options stay updated with FLSA and state overtime laws to keep everything accurate.
