Learn how to calculate overtime pay, and what formula to use for exempt and non-exempt employees
In 1938, President Franklin D. Roosevelt signed the landmark Fair Labor Standards Act (FSLA), which includes the federal overtime pay regulations. Since then, many employers have struggled to comply with the Act’s overtime rules; some have even faced lawsuits for unpaid overtime.
One of the first steps toward FLSA compliance is knowing how to calculate overtime pay.
What is overtime pay?
Under the FLSA, overtime pay is compensation for work hours exceeding 40 in a workweek. Overtime hours must be paid at 1.5 times the employee’s regular rate of pay.
To qualify for overtime, the employee cannot be exempt from the FLSA’s overtime pay provisions. In other words, they must be nonexempt. Generally speaking, most hourly employees are nonexempt and most salaried employees are exempt.
If your employees work in a state that has its own overtime pay regulations, you’ll need to consider those laws as well. For instance, in California, nonexempt employees must receive overtime pay — at 1.5 times their regular rate — for work hours over 8 in a day (up to 12 hours for the day) and the first 8 hours worked on the 7th straight day of the week.
Other states that currently have daily overtime laws include Alaska, Nevada, Colorado, and Oregon.
Is double-time pay required?
The FLSA does not require double-time pay, which is twice the employee’s regular rate of pay. The state, however, might mandate double-time pay. In California, for example, work hours over 12 for the day and work hours exceeding 8 on the 7th straight day of the week must be paid at double-time.
How to calculate overtime pay
For hourly, nonexempt employees, FLSA overtime is determined by multiplying the regular rate of pay by 1.5 and then multiplying the result by the number of overtime hours for the workweek. Let’s say the employee makes $15 per hour and has 48 hours for the workweek.
FLSA Hourly Overtime Calculation:
40 regular hours x $15/hour = $600, regular hourly wages
$15/hour x 1.5 = $22.50/hour, overtime rate
$22.50 x 8 overtime hours = $180, overtime wages
$600 + $180 = $780 total wages for the week
Note that the employee must physically work more than 40 hours to receive overtime pay under the FLSA. For instance, if the employee works 40 hours for the week and takes 8 hours of PTO, you can pay the entire 48 hours at their regular rate.
When calculating overtime, it’s important to know what encompasses the employee’s workweek and regular rate of pay. Generally, regular rate of pay includes all remuneration to the employee — such as hourly wages, salary, nondiscretionary bonuses, and commissions — except those excluded by law. Refer to the DOL’s final rule — published on Dec. 16, 2019 — to see what can be excluded from the regular rate of pay.
If the state has overtime pay rules that differ from the FLSA, do the math for both the FLSA and state requirements. Then, apply whichever one gives the hourly, nonexempt employee the most overtime pay.
How to calculate overtime pay for salaried employees
One of the biggest wage-and-hour pitfalls among employers is assuming that all salaried employees are exempt from overtime pay. Federally speaking, salaried employees are excluded from overtime pay only if they meet the FLSA’s criteria for exemption. Those who don’t meet the FLSA’s criteria are salaried, nonexempt and must receive overtime pay for work hours exceeding 40 for the week. Consequently, you must track hours worked for salaried, nonexempt employees.
When calculating overtime for salaried, nonexempt employees, you’ll need to convert the salary into an hourly rate. Again, make sure you take into account what can and cannot be included in the regular rate of pay. Let’s say the employee earns a weekly salary of $700 and has 50 hours for the workweek.
FLSA Salary Overtime Calculation:
$700 (salary) / 50 hours = $14/hour, regular rate of pay
$14/hour x 1.5 = $21/hour, overtime rate
$21 x 10 overtime hours = $210
$700 + $210 = $910, total pay for the week
If your salaried, nonexempt employees are subject to both federal and state overtime laws, use the higher standard.
There are several other aspects of overtime pay, besides what’s presented in this article. For instance, there’s premium overtime, weighted average overtime, and overtime for fluctuating workweeks.
For more information on overtime pay, visit the DOL website, contact the state labor department, or consult with a wage-and-hour expert. Moreover, you can utilize the DOL’s FLSA Overtime Calculator Advisor, which is designed to help employers calculate overtime pay correctly, according to FLSA standards.