What Overtime Pay Is and How to Calculate it
Under the FLSA, overtime pay is additional compensation (i.e., premium pay) that employers must pay to nonexempt employees who work more than 40 hours in a workweek. As previously stated, the federal rate is time and one-half the regular rate of pay, however, states that have their own laws may require daily overtime payments or double time premium pay. Sometimes nonexempt employees who are normally paid a fixed hourly rate work certain hours, usually at undesirable times, which grants them additional https://www.bookstime.com/ hourly pay. In such cases, employers must use the blended rate or weighted average of all rates paid in order to calculate the overtime premium due for hours worked over 40 in the workweek. Note that the FLSA has an exception to this rule that allows employer to pay overtime via the “rate in effect.” Most states, however, do not permit this method. An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work.
How Does Overtime Pay Work?
If your workers stay beyond their normal workday, they must receive overtime pay. Calculating overtime pay is usually easiest with hourly employees who have a single rate of pay and no additional compensation. Following FLSA rules, multiply the regular rate of pay by 1.5 and multiply the result by the total what is overtime number of overtime hours worked. Using the time-and-a-half rule of thumb, you’d calculate overtime pay by multiplying an employee’s hourly rate by 1.5 and then multiplying the result by the number of overtime hours they worked. You then add that total to the amount they make within a 40-hour workweek.
Building Better Businesses
As mentioned above, the typical threshold in most countries (including the U.S.) is 40 work hours a week. Whatever the limit is (some laws contain other thresholds), the employer should compensate for each hour exceeding the normal threshold. According to the FLSA rules (Fair Labor Standards Act), nights, weekends, or holidays do not require to be paid as overtime (unless the worker crosses the regular hours’ threshold).
Budget for Increased Payroll Costs
There are many other classes of workers who may be exempt including outside salespeople, certain agricultural employees, certain live-in employees, and certain transportation employees. Employees can neither waive their FLSA protections nor abridge them by contract. In cases where an employee is subject to both the state and federal overtime laws, the employee is entitled to overtime according to the higher standard (i.e., the standard that will provide the higher overtime pay). The eligibility is subject to state regulations, but the FLSA requires that all employers compensate their employees for extra hours worked beyond the normal working time. If the normal work week is 35 hours and the employee works 50 hours, they are eligible to earn overtime pay for the extra 15 hours. Overtime pay rate varies in different companies and is determined by various factors besides hours worked.
According to the FLSA, the formula for calculating overtime pay is the nonexempt employee’s regular rate of pay x 1.5 x overtime hours worked. This calculation may differ in states that have requirements, such as double time, which are more favorable to the employee. Overtime refers to the number of hours an employee works beyond the standard 40-hour workweek. The US Department of Labor (DOL) determines the federal overtime pay and eligibility requirements employers must follow. Generally, covered non-exempt employees are entitled to compensation, or overtime pay, above their usual wage rate for every extra hour clocked. Overtime pay is given as fair compensation to nonexempt employees who work more than 40 hours a week.
- This is calculated by dividing the total pay for employment (except for the statutory exclusions noted above) in any workweek by the total number of hours actually worked.
- You’ll use simple multiplication to figure out the overtime pay for an employee.
- As mentioned above, the typical threshold in most countries (including the U.S.) is 40 work hours a week.
- The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on such days.
- 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.
- According to the Fair Labor Standards Act (FLSA), anyone who works beyond the standard 40-hour workweek is eligible for overtime pay.
Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business. While we take all precautions to ensure that the data on this site is correct and up-to-date, we cannot be held liable for the accuracy of the labor law data we present.
- The new final overtime rule updates the salary threshold for determining whether employees are exempt from overtime pay.
- As previously stated, the federal rate is time and one-half the regular rate of pay, however, states that have their own laws may require daily overtime payments or double time premium pay.
- Non-exempt workers should keep track of their weekly hours so that you can calculate their overtime pay accurately.
- They must be treated as a salaried employee, and must be paid in set portions, at set intervals.
- Overtime refers to any hours worked by an employee that exceed their normally scheduled working hours.
- An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work.
Step 4: Calculate overtime pay
- The labor market is currently going through a period of change that impacts all its members, including employees, employers, and independent contractors.
- Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content.
- This is particularly important for employees who may be close to the salary threshold or whose job duties might not clearly fall into the exempt category.
- A regular rate of pay, according to the FLSA, is what a person earns per hour in a standard 40-hour workweek.