How Do You Calculate Overtime? Key Methods and Examples Explained

Overtime pay under FLSA applies to hourly, salaried, and commission-based employees, with examples reflecting federal and state-specific rules. Calculations include weighted averages, shift differentials, and bonuses, adhering to legal payroll compliance standards.

By Brad Nakase, Attorney

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Table of Contents

1. How is overtime calculated?

2. What is the definition of overtime pay?

3. What is the base pay rate under the FLSA?

4. How does the overtime system work?

5. Overtime exempt employees

6. Overtime compensation for hourly workers: how to figure it out

7. How to determine overtime compensation when using different rates

8. Calculation of overtime pay for salaried nonexempt workers

9. How to figure out overtime pay for a nonexempt worker whose workweek changes

10. How to calculate overtime compensation for non-hourly pay

11. The laws and policies regarding overtime

12. Accurately recording overtime compensation

13. Commonly asked questions regarding pay for overtime

How is overtime calculated?

Although the Fair Labor Standards Act (FLSA) mandates that nonexempt, eligible workers get overtime compensation for hours worked over 40 in a workweek at a rate no lower than time and half their usual rate of pay, there are other factors to consider when determining overtime pay.

This federal rule may seem simple at first, but it gets trickier when you include in things like flexible schedules, different types of pay (such as hourly, salary, piece-rate, or commission), and other types of compensation (such as non-discretionary bonuses or shift pay).

Complicating things further, companies are required to adhere to both federal wage and hour regulations and those enacted at the state and city levels. Companies are required to pay overtime at the rate that is most advantageous to workers in cases when these rules conflict.

What is the definition of overtime pay?

Nonexempt workers who put in more than 40 hours per week are required by law to receive premium pay, sometimes known as overtime pay, from their employers. As mentioned previously, the rate according to federal law is one and a half times the regular rate of pay. States, however, may have their own regulations that mandate double time premium pay or daily overtime pay.

What is the base pay rate under the FLSA?

An employee’s average hourly rate is their usual rate of compensation. To determine it, take the entire weekly compensation (without any statutory exclusions) and divide it by the total amount of hours worked.

How does the overtime system work?

All states use the workweek as the basis for calculating overtime, with the exception of those that mandate premium pay every day. A workweek is defined as seven 24-hour periods that occur consecutively or at regular intervals of 168 hours per the Fair Labor Standards Act.

There is no correlation between the employee’s pay frequency (e.g., bi-weekly, semi-monthly, monthly) and the start time or day of the week. It is also not allowed to average hours worked over two or more workweeks since each workweek is considered independently.

Take, as an example, a nonexempt worker who puts in eight hours on Monday, Tuesday, and Wednesday, ten on Thursday, and six on Friday. Although this worker would not be entitled for weekly overtime compensation under the Fair Labor Standards Act, state labor laws may provide that they are eligible for two hours of extra for the hours worked on Thursday.

Overtime exempt employees

If an employee’s compensation is higher than the federal minimum wage and their job activities fall within one of the recognized overtime-exempt jobs, then the employee may not be required to work overtime under the Fair Labor Standards Act (FLSA). Jobs in executive, administrative, professional, outside sales, or computer-related roles are the ones most often exempted.

Overtime compensation for hourly workers: how to figure it out

When it comes to hourly workers with a flat rate of pay and no other forms of compensation, overtime pay is typically the easiest to calculate. Multiply the base salary by 1.5 and then by the sum of all overtime hours worked in accordance with FLSA regulations.

Example

A nonexempt hourly worker puts in 46 hours a week and makes $10 per hour. There is no overtime pay or other mandatory minimum wage laws in effect in any state that go beyond what is required under the Fair Labor Standards Act. To get this worker’s entire compensation, which includes the overtime premium, one might use the following formula:

$10 times 40 hours equals $400 in base pay.

$10 multiplied by 1.5 equals $15 in overtime pay

$15 of overtime pay for 6 extra hours = $90 in overtime pay

Pay in total: $490 ($400 + $90).

How to determine overtime compensation when using different rates

Nonexempt workers who are regularly paid a certain rate per hour may occasionally be paid more for working specific hours, which are typically during inconvenient times. One name for this method is a shift differential.

To determine the overtime premium that is payable for hours worked above 40 in a workweek, employers are required to apply either the blended rate or a weighted average of all rates paid. Keep in mind that most states do not authorize employers to pay overtime based on the “rate in effect,” although there is an exception to this restriction under the FLSA.

Example

In a state that adheres to the Fair Labor Standards Act’s overtime regulations, a nonexempt worker puts in 35 hours during the day at $12 per hour and 10 hours during the night at $15 per hour. The following is the formula for determining this worker’s weekly compensation, which includes the overtime premium:

($12 times 35 hours) + ($15 times 10 hours) = $570 regular pay

$570 / 45 hours worked = $12.67 hourly rate of pay

0.5 x $12.67 = $6.34 overtime premium rate.

$6.34 times 5 extra hours = $31.70 in overtime pay

$570 plus $31.70 = $601.70 in paid wages

Calculation of overtime pay for salaried nonexempt workers

The basic idea behind a salary is to provide a consistent income for a set number of hours worked each week. To determine the normal rate of pay for a nonexempt employee, as required by federal law, divide the weekly wage by the total amount of hours worked.

You should know that the usual rate of compensation for nonexempt employees who are paid a salary varies from state to state. Businesses should check the relevant state laws and make sure they follow them.

Example

A nonexempt worker may expect to make $1,200 per week working 40 hours. In order to complete a task by a certain date, the person puts in two more hours one week. Here is how to figure out how much money the worker is due for the week, including overtime:

$40 hours times $1,200 equals $30 per hour.

$30 times 1.5 is $45 for the overtime premium.

$45 times 2 extra hours worked equals $90 in overtime pay.

Total payment due: $1,290 ($1,200 + $90).

How to figure out overtime pay for a nonexempt worker whose workweek changes

Overtime calculations for nonexempt workers with set workweeks are simple, as seen in the preceding example. However, what happens when an employee’s hours change frequently? The Fair Labor Standards Act (FLSA) allows companies to pay certain employees half of their usual wage for overtime if the following criteria are satisfied:

Every employee and employer has an agreement that their paychecks are a reflection of the total number of hours worked in a given week.
The employees’ schedules are subject to weekly changes.
No matter how many hours an employee works fewer than their usual schedule, they will still earn their agreed-upon salary.
With enough money coming in from paychecks, the regular rate will never be lower than the minimum wage.
For each hour of overtime performed, workers get at least half of their regular wage.

Be aware that the changing workweek calculation approach is not allowed in some states. Businesses should check the relevant state laws and make sure they follow them.

Example

No matter how many hours they work, a nonexempt employee receives a weekly compensation of $900. This worker’s total compensation, including overtime premium, would be as follows if they put in 55 hours per week:

$900 divided by 55 hours equals $16.36 per hour

The rate for overtime premiums is $8.18 ($16.36 multiplied by 5).

15 hours of overtime times $8.18 is $122.70 for premium overtime compensation.

Total amount due: $1,022.70 ($900 plus $122.70).

How to calculate overtime compensation for non-hourly pay

Pay for overtime isn’t always calculated in accordance with an hourly or salary rate. Overtime pay must take into account specific forms of additional compensation, including but not limited to the following.

1. Piece-rate work

Workers in manufacturing and related fields often get compensation based on the quantity of items they finish. A toy factory assembly line worker, for example, may earn $2 for each item. Employers often just need to pay the piece rate under regular circumstances, but they typically have to take the following extra rules when employees work overtime:

To calculate the hourly wage, divide the piece rate by the total number of hours worked.
To find the rate for overtime premium, multiply the base salary by half.
To calculate the overtime premium, multiply the total number of hours worked by the premium rate.
A worker’s total compensation is the sum of their piece rate pay and overtime premium.

When it comes to piece-rate employees and overtime, keep in mind that various states may use different formulas. Businesses should check the relevant state laws and make sure they comply with them.

2. Commissions and non-discretionary bonuses

Nonexempt workers’ normal pay rates are required by the Fair Labor Standards Act to include any non-discretionary bonuses or commissions they receive. Any commission or bonus payments made on a weekly or other regular basis (monthly, quarterly, yearly, etc.) will have their own methods of calculation.

It should be noted that the usual rate of pay for nonexempt employees awarded a flat sum bonus is calculated differently in several jurisdictions. It is the responsibility of the employer to research and follow these state laws.

The laws and policies regarding overtime

Keep in mind that for nonexempt workers who put in more than 40 hours a week, the overtime calculation factor under the Fair Labor Standards Act is 1.5 times the ordinary rate of pay. There are a number of states that have different overtime regulations.

Nonexempt workers in California, for example, are eligible for overtime compensation at either 1.5 times or double the standard rate if they work more than a specific number of hours in a single weekday. By following the overtime regulations set down by each state, employers can lessen their exposure to risk.

Accurately recording overtime compensation

The Fair Labor Standards Act (FLSA) mandates the retention of payroll records, including overtime payments given to nonexempt employees, for a minimum of three years. There is a two-year retention requirement for any paperwork that explains the calculation of pay, such as timesheets. In addition to the time periods specified by the Fair Labor Standards Act (FLSA), several states impose additional recordkeeping obligations on employers with respect to payroll.

Commonly asked questions regarding pay for overtime

1. How is the daily rate of overtime determined?

If an employee’s shift length exceeds eight hours, for example, their employer is required by law in states that compute overtime per workday to pay them at the relevant overtime rate for each additional hour.

2. How does overtime pay out? Per day or per week?

While federal overtime regulations are structured on a 40-hour workweek, several states determine overtime depending on the workday. Business owners need to follow the rules set down by each state.

3. When calculating overtime compensation, what is the formula?

For nonexempt employees, the method for determining overtime compensation is their usual rate of pay multiplied by 1.5 times the number of overtime hours worked, as per the Fair Labor Standards Act. In states with employee-friendly regulations, such as double time, this calculation could be different.

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How Do You Calculate Overtime? Key Methods and Examples Explained

How is overtime calculated?

What is the definition of overtime pay?

What is the base pay rate under the FLSA?

How does the overtime system work?

Overtime exempt employees

Overtime compensation for hourly workers: how to figure it out

How to determine overtime compensation when using different rates

Calculation of overtime pay for salaried nonexempt workers

How to figure out overtime pay for a nonexempt worker whose workweek changes

How to calculate overtime compensation for non-hourly pay

The laws and policies regarding overtime

Accurately recording overtime compensation

Commonly asked questions regarding pay for overtime

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