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Your Step-by-Step Guide to Calculating Overtime Pay

The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees 1.5 times their "regular rate of pay" for all hours worked over 40 in a workweek. Some states require overtime pay in additional circumstances and at different rates.

Example: California requires employers to pay non-exempt employees 1.5 times their regular rate of pay for:

  • Hours worked over eight in a workday;
  • More than 40 hours in a workweek; and
  • For the first eight hours of work performed on the seventh consecutive work day in a single workweek.

California also requires employers to pay non-exempt employees double their regular rate of pay for all hours worked over 12 in a workday, and over eight on the seventh consecutive workday in a workweek.

Regular Rate of Pay:

An employee's regular rate of pay includes their hourly rate as well as the value of nondiscretionary bonuses, shift differentials, and certain other forms of compensation.

Examples of Overtime Calculations:

Here are some examples of calculating overtime under federal law. Always check to ensure calculations comply with both federal and state law.

 

Example #1: Hourly Wage Only

A non-exempt employee is paid $20 per hour and receives no other forms of compensation. In one workweek, she works 50 hours. Under the FLSA, her overtime pay is calculated as follows:

$20 (regular rate) x 1.5 (OT premium) x 10 hours (OT hours worked) = $300 in OT pay

 

Example #2: Hourly Wage with a Nondiscretionary Bonus

A non-exempt employee is paid $12 per hour. In one workweek, he works 50 hours and receives a $100 nondiscretionary productivity bonus. Overtime is calculated as follows:

Step 1: Add straight-time hourly wages for all hours worked and bonus to determine total straight-time compensation.

($12 hourly rate x 50 hours worked) + $100 bonus = $700

Step 2: Divide total straight-time compensation by total hours worked to determine regular rate of pay.

$700 straight-time pay divided by 50 hours worked = $14

Step 3: Multiply regular rate of pay by .5 and then multiply by total overtime hours.

$14 regular rate of pay x .5 x 10 overtime hours = $70

Since the straight-time earnings have already been calculated for all hours worked (see Step 1), the employee is entitled to an additional 10 hours of overtime pay, calculated at one-half the regular rate of pay.

Step 4: Calculate total compensation.

$70 overtime pay + $700 straight-time pay = $770

State Law: Your state law may require a different formula. For example, in California, when an employee receives a flat-sum bonus (for instance, an employee receives a $30 bonus if they work a shift on a Saturday), you factor it into an employee's regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours worked. The employer should then use 1.5 (or 2 in certain cases), not 0.5, as the multiplier for determining the employee's overtime pay rate.

Note: If the nondiscretionary bonus is earned over a single workweek, as is the case above, the bonus is added to the employee's regular earnings for that workweek when determining the regular rate of pay. However, if the bonus is earned over a series of workweeks, the bonus must be included in the regular rate of pay in all overtime weeks covered by the bonus period.

 

Example #3: Multiple Rates of Pay

A non-exempt employee works for the same employer in two different jobs. In one workweek, the employee works 10 hours for $10 per hour and 40 hours for $20 per hour. When there are two or more rates of pay, the regular rate for that workweek is the weighted average. To calculate overtime:

Step 1: Calculate total straight-time pay.

($10 hourly rate x 10 hours) + ($20 hourly rate X 40 hours) = $900

Step 2: Divide total straight-time compensation by total hours worked to determine regular rate of pay.

$900 straight-time pay divided by 50 hours worked = $18

Step 3: Calculate overtime premium pay.

$18 regular rate of pay x .5 x 10 overtime hours = $90

Since the straight-time earnings have already been calculated (see Step 1), the additional amount to be calculated is one-half the regular rate of pay.

Step 4: Calculate total compensation for week.

$900 straight-time pay + $90 overtime pay = $990

State Law: For the purposes of determining the regular rate of pay, federal law also allows employers to use the hourly rate in effect when the overtime work is performed, as long as the employee agreed to this method in advance of performing the work. Some states have different rules. Check your state law to ensure compliance.

 

Example #4: Salaried Non-Exempt Employee with Fixed Schedule

A non-exempt employee with a fixed schedule earns a weekly salary of $400 and is expected to work 40 hours per week for that salary. In one particular workweek, the employee works 50 hours.

Step 1: Calculate total straight-time pay.

$400 salary divided by 40 hours = $10 hourly rate

50 hours worked x $10 hourly rate = $500

Step 2: Calculate regular rate of pay.

$500 straight-time pay divided by 50 hours worked = $10 per hour

Step 3: Calculate overtime pay.

$10 regular rate of pay x .5 x 10 overtime hours = $50

Since straight-time earnings have already been calculated (see Step 1), the additional amount to be calculated is one-half the regular rate of pay ($10 x .5 = $5).

Step 4: Calculate total compensation for week.

$500 straight-time pay + $50 overtime pay = $550

State Law: Under the FLSA, to calculate a salaried non-exempt employee's regular rate of pay, the employer considers the number of hours the employer and employee understand that the salary is intended to cover, which may be more than 40. For example, if the employer and employee understand the salary to cover 45 hours, then the employer may calculate the regular rate of pay by dividing the weekly salary by 45 hours. In this case, the overtime rate would be .5 x the regular rate for hours 40 to 45 and 1.5 times the regular rate for hours in excess of 45 under the FLSA. Some states have different rules and require that the weekly salary be divided by non-overtime hours worked only when determining the regular rate of pay. Check your state law to ensure compliance.

Conclusion:

Review your pay practices to ensure that you are calculating and paying overtime in accordance with state and federal laws.

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