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You must consider exceptions and concerns such as federal and state overtime pay requirements while learning how to calculate overtime for your workers. You must evaluate whether you must pay workers 16 and older overtime at a rate of at least 1.5 times their usual pay for hours worked beyond 40 in a workweek since there is no restriction on the number of hours they may work in a workweek.
The method of calculating overtime for your hourly and salaried staff has been simplified down into five simple phases, which are shown below. Keep in mind that certain states have their own set of restrictions; we’re just talking about federal overtime here.
Step 1: Determine your regular pay.
Calculate the number of hours worked times the pay rate for hourly workers. Divide any additional pay (bonuses, for example) by the number of hours worked.
Start by converting the compensation into weekly equivalents for salaried personnel. Divide the yearly salary by 52 to arrive at this figure. (Alternatively, multiply the income of the paycheck by the number of paychecks in a year, then divide by 52.) Then divide that amount by the number of hours worked that week, plus any extra remuneration for that week.
Step 2: Examine the Overtime Rate
Check with your state to see whether the overtime rate is 1.5 times normal pay for all hours worked above 40 in a week or more (state laws are lower in this article). Keep track of whether you need to compute daily or weekly overtime, double time vs. time-and-a-half, and the maximum number of hours you may work before overtime kicks in.
The overtime rate is calculated by multiplying the normal rate by the overtime percentage, which is usually 1.5 or 2. It’s always possible to pay more than the required minimum. If you use payroll software, the tables may already be included in the application, so you won’t have to do any research.
Step 3: Calculate the total number of hours worked in overtime.
Even if your state has a higher threshold, everyone covered by the Fair Labor Standards Act (FLSA), which regulates overtime compensation for the whole country, must count hours above 40 in a workweek. The greater figure refers to FLSA-exempt enterprises that are nevertheless subject to state law. Minnesota, for example, mandates overtime pay for hours worked beyond 48 in a workweek. If the Fair Labor Standards Act (FLSA) applies to you, you must begin working overtime after 40 hours. Otherwise, 48+ is a good place to start.
Step 4: Work Out Your Overtime Pay
Calculate the overtime pay rate by multiplying all overtime hours worked by the overtime pay rate. The total hours would be (regular pay rate x 40) + (regular pay rate x 40) + (regular pay rate x 40) + (regular pay rate x 40 (extra hours x regular pay rate x 1.5).
Step 5: Combine overtime pay with regular pay and other benefits.
Add any extra remuneration, such as bonuses or commissions, once you’ve calculated the salary for the hours worked (including overtime).
AN EXAMPLE OF HOW TO COMPUTE OVERTIME FOR HOURLY EMPLOYEES
Last week, Jorge worked 50 hours, including 10 hours of overtime, and received an extra $200 in commissions. He gets paid $10 per hour on a regular basis.
His weekly wage is $10 multiplied by 40, which equals $400. His overtime rate is $10 x 1.5 = $15, resulting in a $15 x 10 = $150 overtime compensation.
As a result, his weekly pay is $400 + $150 + $200 (commission) = $750.
EXAMPLE: Calculating Overtime for Salaried Non-Exempt Workers
Moira’s annual salary is $30,000, or $576.92 per week. She is normally paid monthly, but this month she is receiving a $200 bonus. She worked 45 hours last week. (Please note that the figures have been rounded.)
First, since the incentive is for the full month, we prorate it to a weekly sum. $200 divided by four equals $50. After that, we figure up her weekly pay: $626.92 = $576.92 + $50 Her normal wage is $626.92/45 = $13.93 per hour. Her overtime rate is $13.93 multiplied by 1.5 for a total of $20.90. Her overtime compensation is $20.90 multiplied by 5 equals $104.50.
Rather than computing her weekly income, we would add $104.50 to her monthly payment as overtime compensation (plus any overtime she earned in other weeks in that pay period).
Overtime Calculation for Federal Work on a Piece-Rate Basis
You have two possibilities for determining overtime when you pay workers on a piece-rate basis.
Option 1: Calculate the rate by adding the employee’s total piece rate, dividing it by the number of hours worked, and paying 1.5 times that rate for hours worked beyond 40.
OR
Option 2: For all items finished during overtime, pay 1.5 times the piece rate. (There may be exceptions to this regulation in certain states.)
EXAMPLE: Overtime Calculation for Work on a Piece-Rate Basis
Jenny put in 50 hours to finish two websites, one worth $600 and the other for $400. During overtime, she completed the $400 website. Her remuneration will be $600 + $400 = $1,000 if she chooses the first choice.
Her standard hourly wage is $1,000/50 = $20. Her overtime rate is $20 multiplied by 1.5 = $30 per hour.
As a result, her total salary is $1,000 + ($30 x 10) = $1,300, which is her piece rate plus overtime. Jenny receives overtime for the $400 website in the second choice, so $400 x 1.5 Equals $600. Her weekly compensation is $600 + $600 = $1,200.
Who Gets Paid for Working Extra Hours?
The basic explanation is that everybody who works more than 40 hours in a week is entitled to overtime pay. There are, however, exceptions. Your workers must meet specified requirements based on their salaries and job tasks or obligations to be excused from overtime.
Salaried workers earning more than $684 per week, or $35,568 yearly, may be excused from overtime rules as of January 2020. Also, the salary or fee barrier for highly compensated personnel has been raised to $107,432 (of which $684 must be paid weekly).
State rules may have their own set of criteria.
Who is not entitled to overtime pay?
Employees may be excused from the minimum wage requirement if their major responsibilities involve any of the following:
- Managing two or more full-time workers as an executive
- Administrative work
- Professional: Work that requires a high level of expertise.
- Outside Sales: Selling items or services to customers at their place of work or at their residence.
Laws Regarding Overtime Pay
Hourly and non-exempt salary workers must be paid 1.5 (time and a half) of their usual wage rate for hours worked above 40 in a workweek, according to federal law. Before you start handling payroll, there’s a lot to absorb in this statement.
What Is the Definition of a Workweek?
A workweek is defined as 168 hours in a row (seven days). It might begin at any hour of the day or on any day of the week. You have the option of selecting the workweek that best meets your requirements. It might also vary depending on the sort of employment. However, once a workweek has been established, it should be adhered to.
If your employee’s workweek varies, you may be able to work out an overtime agreement for weeks when he or she works more than 40 hours. This is common among police officers, firemen, and healthcare sector personnel (such as physicians, nurses, other hospital employees, and caretakers). However, there are certain restrictions.
For further details, see the FLSA standards.
What do you mean by “hours worked”?
Principal work tasks, as well as preliminary and post-preliminary activities, are included in the hours worked if they are an essential aspect of the employee’s primary responsibilities.
Using Multiple Pay Rates to Determine a Regular Pay Rate
Some personnel may be paid differently depending on their job tasks, such as sales vs. backroom. In this situation, regardless of the payment schedule that the overtime was performed under, you use the weighted average of the pay earned that workweek to calculate overtime.
Work on a Piece-Rate Basis
Work on a Piece-Rate Basis is when you pay an employee (not a contractor) a fixed amount for completing a job, like a landscaping project or building a website. They are also subject to overtime.
Many states have different overtime rules. These will exceed the federal rules on overtime pay, so if you follow them, you will be in payroll compliance with federal law. Generally, you follow state Laws Regarding Overtime Pay for states where the employee is doing the work, an important consideration when employing telecommuters.
From minimum wage and overtime requirements to vacation accrual payments, our state payroll guides lay down all laws and regulations that you’ll need to examine on a state-by-state basis.
Consider payroll software like Gusto if your workers often work overtime and you need assistance with computations. It stores all federal and state overtime rates and automatically calculates employee payouts based on time spent. It also automatically adjusts all overtime rates in the system if the legislation changes, so you don’t have to.
Conclusion
Both the federal and state governments have overtime restrictions that must be understood and followed. If you do not pay on time, you will be required to pay it in back pay and may face penalties. While the general concept is straightforward, there are several exceptions and exclusions, and laws in specific states (such as California and Colorado) may become complicated.
Most payroll software can calculate over time and is typically up to date with the most recent judgments.
