How To Calculate Overtime: A Comprehensive Guide

Overtime is defined as any additional time your employees work outside of their regular work hours. Any business owner with employees must know how to calculate overtime pay. There will be times when there is simply more work than regular work hours in a week, and you need your team to stay late. If your workers stay beyond their normal workday, they must receive overtime pay.

The rate of overtime must be at least 1.5 times the amount of the hourly pay rate. So if your employee is usually paid $20 per hour, they will be paid $30 per hour for every hour worked exceeding their normal 40-hour work week. You cannot avoid paying overtime pay if your workers exceed the maximum 40 hours in a work week. 

In the following article, we’ll explain what overtime is, how overtime pay works, how to calculate the overtime rate of pay, and how to remain in compliance with labor laws and regulations as an employer. Whether you want to learn how to calculate overtime for monthly salary employees or how to figure out the overtime rate per hour for employees with a fluctuating work week, you’ll find the answers about overtime calculations in this informative guide.

Key Takeaways 

• Overtime must be paid to nonexempt employees in the US who work more than 40 hours in a workweek.
• The standard overtime pay rate is 1.5 times the employee’s regular rate of pay. 
• There are different methods of calculating overtime depending on your employees’ regular pay structure and work schedule.
• Employers may face fines and legal trouble if they do not comply with the overtime rules laid out by the Fair Labor Standards Act (FLSA).

Table of Contents

• Overtime Pay Calculation for Hourly Employees
• Overtime Pay Calculation for Nonexempt Employees Earning a Salary
• Overtime Pay Calculation for Nonexempt Employees Who Work a Fluctuating Workweek
• Overtime Pay Calculation For Non-Hourly Compensation 

Overtime Pay Calculation for Hourly Employees 

The Fair Labor Standards Act (FLSA), along with federal and state laws throughout the US states that employees must receive proper compensation for their work.

According to the Department of Labor, 1 Department of Labor. “Wages and the Fair Labor Standards Act” Accessed March 13, 2024. all workers who are covered and nonexempt must receive overtime pay when they work over 40 hours per workweek. The rate must be no less than 1.5 times their regular pay rate. Hours worked include all time spent onsite at the workplace, on duty, or performing any work-related activities.

How To Calculate Overtime for Hourly Employees With Single Pay Rates

For hourly workers with single pay rates, calculating the overtime pay rate takes just a few straightforward steps.

1. Start with the employee’s regular hourly pay rate, which is the amount of money they are paid per regular hour worked. In the US, the minimum amount this rate can be is $7.25 per hour, but this varies from state to state and may need to be higher depending on where you live. 

2. Multiply their hourly wages by 1.5. For example, if your employee makes the federal minimum wage, you would multiply $7.25 by 1.5. 

• $7.25 x 1.5 = $10.88

3. Multiply the total by the number of overtime hours they have worked to determine how much overtime pay to add to your employee’s standard 40-hour paycheck. For example, if they worked a total of 44 hours in one week, 4 of those hours would be considered overtime. 

You would pay the first 40 hours at their regular hourly rate, and the rest at the overtime premium pay rate. Using our minimum wage employee example from above, here is an example.

• $7.25 (regular pay rate) x 40 hours = $290
• $10.88 (overtime pay rate) x 4 hours = $43.52

4. Add the regular pay to the overtime pay. In this example, you would add their $290 earned at the regular rate to the $43.52 earned in overtime. 

• $290 + $43.52 = $333.52

How To Calculate Overtime for Hourly Workers With Multiple Pay Rates

If one person works in multiple roles within a company and receives different rates of pay for each role, the regular rate used to determine overtime will be the weighted average of the two wages. 

Calculating overtime for employees who have multiple pay rates takes some different calculations than those with single pay rates. The following is an example of how to calculate overtime pay for hourly workers with multiple pay rates.

1. Calculate the weighted median of the 2 pay rates, by adding the total amount earned in the week, then dividing that number by the number of hours worked. 

For example, if a person works 30 hours in one role at a rate of $10 per hour ($300 total) and 20 hours in a second role for $12 per hour ($240 total), you would add the totals together then divide them by the full 50 hours worked to find their pay rate. 

• $300 + $240 = $540
• $540 / 50 hours = $10.80

2. Calculate the overtime by multiplying the hourly wage by 0.5 (because overtime is 1.5 times the normal rate of pay). In our example this would be:

• $10.80 x 0.5 = $5.40

3. Add the overtime amount to the number of overtime hours worked. In our example, the employee worked 50 hours total, so they would be paid 10 hours of overtime. 

• $5.40 x 10 = $54.00

4. Add the overtime pay to their regular paycheck amount. 

• $540 + $54 = $594

Overtime Pay Calculation for Nonexempt Employees Earning a Salary 

According to federal and state laws, a nonexempt employee on a fixed salary is still entitled to overtime pay if they have overtime hours. To calculate overtime pay:

1. Determine how much they earn per hour. This is done by dividing how much they were paid in a week by the number of hours they worked. For example, if the employee typically earns $500 in a 40-hour workweek:

• $500 / 40 = $12.50
• Their hourly rate is $12.50

2. Multiply their average hourly rate by the number of hours they worked to find what their earnings would be at that rate. In this example, say the employee worked an extra 10 hours of overtime, for a total of 50 hours in one week.

• $12.50 x 50 = $625

3. Find the overtime rate by multiplying the hourly pay by 0.5 (because overtime is 1.5 times the normal rate of pay).

• $12.50 x 0.5 = $6.25

4. Determine the overtime compensation amount, and add it to their total hourly compensation for the week.

• $6.25 x 10 hours overtime = $62.50
• $625 (regular rate hours) + $62.50 (overtime pay) = $687.50

Overtime Pay Calculation for Nonexempt Employees Who Work a Fluctuating Workweek 

If your employee has a fluctuating workweek, how does overtime work? This is a scenario often seen in casual positions and part-time jobs. Follow these steps to calculate overtime pay.

1. Determine the person’s regular rate of pay. Take their weekly salary amount, and divide it by all the hours they worked that week. If they earned $700 weekly and worked 35 hours that week, you would divide $700 by 35.

• $700 / 35 = $20
• The employee’s regular rate is $20 per hour 

2. Find the overtime premium pay rate, which is one half of the regular hourly rate. In this case, their regular hourly rate is $20 per hour so the overtime pay rate would be $10. 

• $20 x 0.5 = $10

3. Multiply the overtime pay rate by the number of hours worked overtime. If the person in our example worked 10 hours overtime, they would have an additional $100 added to their paycheck. 

• 10 x $10 = $100
• $700 (regular pay) + $100 (overtime pay) = $800

Overtime Pay Calculation For Non-Hourly Compensation 

If an employee is paid for the number of units they produce, rather than the total hours they work, overtime is calculated using these steps:

1. Determine their total earnings per week, then calculate their regular rate by dividing it by the total hours the employee works. For example, if they work for 50 hours a week and earn $550, their regular hourly pay rate will be $11.

• 50 hours – the 40-hour overtime threshold = 10 hours

2. Calculate the overtime premium pay rate. This will be one half of the employee’s regular rate.

• 50 hours – the 40-hour overtime threshold = 10 hours

3. Multiply the overtime pay rate by the number of extra hours worked. 

• $11.00 x 0.5 = $5.50

4. Multiply the overtime pay rate by the number of extra hours worked.

• $5.50 x 10 overtime hours worked = $55.00

5. The total compensation for this pay period will be the total earnings plus overtime pay.

• $550 (regular pay) + $55 (overtime pay) = $605

How is overtime calculated when dealing with income like commission payments and nondiscretionary bonuses? The calculation of both non-discretionary and discretionary bonuses and holiday pay depends on when they are given and to which pay period they are allocated.

How Do You Calculate Overtime Pay From Regular Pay? 

If you are still left wondering how to calculate the overtime rate per hour when your employee works more than 40 hours in a week, follow this formula:

For example, if your employee usually makes $25 per hour, you would multiply $25 by 1.5 to get $37.50. In this case, for each of the overtime hours worked, your employee would earn $37.50, instead of $25. 

• Regular straight-time pay amount x 1.5 = overtime pay rate
• $25 x 1.5 = $37.50

How To Calculate Time and a Half 

Calculating overtime pay is important if the employees at your organization are working overtime. 

If your employee is an hourly worker, all you need to do is multiply their regular rate of pay by 1.5. This is their applicable overtime rate. 

If your employee is salaried but non-exempt, you will need to first figure out their regular rate by dividing the amount they earned for their weekly salary that week by the number of hours worked. Once you have this regular rate of pay, multiply that number by 1.5 for their overtime pay rate.

How Does Overtime Pay Work? 

Overtime pay is given as fair compensation to nonexempt employees who work more than 40 hours a week. It’s extra pay at a minimum rate of 1.5 times their regular hourly earnings. 

This additional compensation is based on the FLSA’s definition of a fixed, regularly recurring workweek of 168 hours, or seven consecutive 24-hour days, which may begin any day of the week. When calculating overtime, each workweek stands alone, so you cannot average the hours worked across two or more weeks. 

Overtime laws are different for salaried employees exempt from overtime, according to the FLSA, although you will have to go through your local state laws and union rules with a fine-toothed comb, as in some cases overtime may be restricted or you may have to give additional compensation above their regular rate of pay for hours worked beyond their regular hours. 

Employers must keep proper, clear records of all employee compensation and working hours, including overtime pay. With Freshbooks time tracking software, it’s easy to keep track of your employees’ workweek, so you can be sure you are offering fair and accurate compensation.

Overtime Pay Rules and Regulations 

There are some important federal overtime laws and regulations business owners must follow to ensure workers are fairly compensated. Employers must pay a wage of no less than 1.5 times the employee’s regular rate when that person works over 40 hours. 

As stated above, employers must keep accurate records of all employee pay and working hours. They must also display an official FLSA poster outlining pay requirements where employees can see it.

Note that the term “working hours” includes time spent reworking, editing, or correcting errors, waiting for work while on the job, working offsite, running errands for the company after hours, or being required to be at the place of work. 

If an employer violates these rules, the Department of Labor 2 Department of Labor. “Employment Law Guide” Accessed March 13, 2024. may:

• Request back payment of any wages owed to the employee
• Fine additional money for damages if applicable
• Recommend changes in business practice to bring the workplace back into compliance
• Bring forth criminal prosecution with a fine of up to $10,000 with a second conviction leading to imprisonment
• Charge civil money penalties for each violation

What Is the FLSA Regular Rate Of Pay? 

A regular rate of pay, according to the FLSA, is what a person earns per hour in a standard 40-hour workweek. Overtime is paid for hours worked in excess of 40 hours in a workweek. If your team works longer than 50 or 55 hours a week, according to the FLSA, you may even have to pay double time, which is twice their normal hourly rate. 

Is Overtime Taxed More? 

Yes, overtime may be taxed more in certain situations. For example, you may be bumped up to a higher tax bracket if you work a lot of overtime, but remember, only the extra earnings that fall within the higher bracket are taxed with the higher rate, not all your earnings. Don’t allow misunderstandings regarding the overtime pay tax rate to dissuade you from working more if you want to.

What Are The Disadvantages Of Overtime? 

There are downsides for business owners who must pay overtime, and some disadvantages of overtime include: 

• A less efficient workplace, as there may be motivation for employees to work slower to earn more
• Overtime premiums can add up to a lot over time, even if it’s just an hour here or there
• Employees who forget to clock out for breaks or work slowly may accidentally bump themselves into overtime pay
• Highly compensated employees may be paid more than your business can afford
• Employees who frequently work long hours may burn out from stress and health issues, negatively impacting your business operations
• If you’re unsure how to calculate overtime hours properly, your company may get into legal trouble

Elevate Your Overtime Game with FreshBooks 

Calculating how much to pay for additional employee hours is a challenge many small business owners have to face. Even if you have nonexempt salaried employees or you pay your workers by the piece, you still have to add overtime to their total pay. With FreshBooks payroll software and time tracking software, you can make sure your employees are fairly compensated for their hard work. 
If you are ready to bring your company to the next level, incorporating online software like FreshBooks will elevate your payroll process so you can be done in minutes and move on to other important business deals. Try FreshBooks free today to see what this powerful software can do for you.

Article Sources

1. Department of Labor. “Wages and the Fair Labor Standards Act” Accessed March 13, 2024.
2. Department of Labor. “Employment Law Guide” Accessed March 13, 2024.

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