Are you an employer looking to calculate overtime for salaried employees? How about figuring out how to pay workers with sporadic hourly schedules, or day-rate schemes? This can be a headache for even the most conscientious accountant, and so we at actiTIME have simplified the rules to help you find out everything you need to know, and fast!
The first thing that bears mentioning is that overtime law in the United States is based on a piece of legislation from 1938 called the Fair Labor Standards Act (FLSA). This formed the basis for overtime laws throughout the country, and many states rely on it exclusively when formulating their own individual regulations.
The FLSA stipulates a number of different ways to pay workers, including hourly, salaried, day-rate options and more. Each one has different rules when it comes to overtime, and we’ll break them down one by one.
Overtime for Salaried Employees
When many of us think about overtime, the first kind of job that often crosses our minds is one based on an hourly wage. This is natural – it’s simple to calculate overtime hours when you’re already tracking hours worked. When it comes to salaried employees, it can seem much harder to track overtime and overtime rates.
The exact opposite is true!
Under the FLSA, all employees that meet certain conditions and are not exempt from overtime law qualify for extra pay, which usually amounts to time-and-a-half, or 1.5x the regular pay rate. But to do this, you have to find the relevant base pay rate first.
This is the part that seems complicated when it comes to overtime for salaried employees, but the algorithm is simple enough. So long as your employee’s position isn’t on the overtime exemption list in your state, all you have to do is first take their yearly salary, divide it by fifty-two, representing the weeks of the year, and then divide that number again by 40, representing the hours worked that week.
Note that certain positions might work more or less than 40 hours, and if there is an agreement reached in that regard (especially if made through collective bargaining), then that is the number you have to divide the weekly base rate at.
If your worker has a yearly salary of $34,000, then their weekly base rate (/52) would be $653.85, and that would make their hourly rate (/40) $16.35.
Once you have the base rate, you multiply that by 1.5 and you get the overtime rate. In this case, the worker in the above example would earn $25.52 an hour.
It deserves mentioning, however, that many of the jobs in the exemption list above, for example executives, computer programmers and administrative staff, are typically salaried jobs. Make sure you check to see if your employee’s position actually qualifies for overtime pay.
Overtime for Hourly Employees
As compared to the salaried employees mentioned above, dealing with overtime calculations for hourly employees is significantly simpler. As already said, most of us already are thinking about hourly wages when we think about overtime pay
As stipulated by the FLSA, the base rate that an employee makes (the regular hourly rate) must be multiplied by 1.5 when a worker is on the job for more than forty hours a week. This means that if someone has a job that qualifies for $18 an hour, then their overtime rate will be $27 an hour.
This seems simple enough, but there are other factors that can make this calculation a little more complicated.
Whether or not you’ll have to factor in these other regulations will depend entirely on what state you live in. As mentioned above, the FLSA is the federal law when it comes to overtime – individual states can layer on their own additions as they see fit.
Some of these additions come in the form of an official “workday” made up of a set amount of hours that, if someone’s hourly shift exceeds it, qualifies someone for overtime even before they’ve worked more than forty hours that week. In Colorado, the workday is made up of 12 hours, while in California it is made up of 8 hours (if a worker is on duty for the seventh day in a row, their first eight hours also counts as overtime).
In fact, California (notorious for its complex overtime laws in general) allows for workers to claim 2x their regular pay rate when working over 12 hours in a single day, or when working over 8 hours on their seventh consecutive day on the job.
Overtime for Day-Rate Employees
Day-rate workers, like salaried workers, need a bit of extra attention when it comes to paying overtime. Everything here comes down to what their base pay rate agreement is, something that can be worked out by tracking hours and days worked.
Take an employee who works with a contract allowing for $100 a day. To calculate their base pay, add the total amount earned, and then divide that amount by the number of hours worked all week. If the employee above worked for five days for a total of 49 hours, then they would have a base rate of $10.20. Thus their overtime rate would be $15.30.
Given the national workweek of 40 hours, the additional 9 hours worked count as overtime, and so would be paid out at the overtime rate instead of the regular rate.
Note that overtime rates will have to be counted each week – due to the shifting nature of day-rate payments, it will often be a new rate every week.
Other Factors to Keep in Mind
While the above three pay regimes are the most common when it comes to overtime calculations, there are a couple of other factors that can impact the amount you’ll be expected to pay out to your workers.
Piece Rate
Sometimes someone’s salary is dependent on how much they produce rather than the time they put in. This is what’s known as a per-piece rate. If a worker produces 50 pieces in forty-five hours over one week, and if each peace gets paid out at $15, then their weekly rate is $750. Divide that by forty-five and you get their base pay: $16.67. Five of those hours should, accordingly, be paid out at a rate of $25.
Like with day-rates, this will have to be recalculated every week.
Bonuses & Commissions
Bonuses and commissions work in a similar way to the other. In order to find the base rate of pay, you add the bonus or commission to the amount earned in the relevant pay period (perhaps two weeks for commissions, sometimes yearly when it comes to a bonus) and then divide that by the hours worked.
Once you’ve got the basic rate, do the math and find out the relevant overtime rate.
Multiple Positions
In cases when workers are employed in two different roles at the same company, ones that receive a different pay rate, overtime pay will often be calculated by adding the amounts earned and dividing by the hours worked. In some states, though (like Colorado), the overtime rate used will be taken using the regular rate of the position occupied when that overtime was incurred. Again, make sure you know your state laws.
Calculating overtime is certainly not rocket science, but when you have a large number of employees on your payroll you’re going to want to minimize the time you spend on your calculations. Take a look at our overtime calculator guide here.
