3 Ways to Calculate Overtime for Hourly & Salaried Employees
Working overtime can be an excellent way to boost your salary and help your career, but it can also lead to legal issues if you’re not calculating time correctly. To avoid costly fines and lawsuits, make sure you know the three ways to calculate overtime for hourly and salaried employees in compliance with the Fair Labor Standards Act. You can do this by taking the following three steps
1) What is overtime?
Overtime is the time an employee works beyond their regular hours. How it is managed depends on whether the employee is hourly or salaried. For hourly employees, overtime is typically calculated as time and a half, meaning they get paid their regular hourly rate plus half of that for each hour worked beyond 40 hours in a week. For salaried employees, there are a few different ways to calculate overtime. The first way to calculate overtime is by using an equivalent hourly wage. To do this, divide the salary by 2080 (52 weeks * 40 hours) and then multiply that number by 1.5 .
So if someone earns $100,000 per year, the equation would be 100,000/2080 = .50. Multiplying .50 by 1.5 would give you $75 per hour ($100,000/52). Another way to calculate overtime is with your average annual salary divided by 2160. So if someone earns $60,000 per year, the equation would be 60,000/2160 = .30. Multiplying .30 by 1.5 would give you $45 per hour ($60,000/52). Finally, another way to calculate overtime is with your weekly pay divided by 52.
2) What are the rules regarding overtime pay?
In the United States, the Fair Labor Standards Act (FLSA) establishes standards for how it is managed, including minimum wage, record keeping, and child labor laws. Overtime pay is time and a half of an employee’s regular rate of pay. For hourly employees, this is simply their hourly rate multiplied by 1.5. For salaried employees, things are a bit more complicated. The overtime threshold has been set at $23,660 annually or $455 per week (or 8 hours/day). If an employee earns less than that amount in salary each week, they don’t qualify for overtime.
If they earn over that amount, but under $47,476 annually (which would be equivalent to earning $913 per week), then they qualify for overtime if they work more than 40 hours in a given workweek. Above the annual income threshold, all workers are entitled to receive overtime no matter how many hours are worked in a given workweek.
3) How do I calculate overtime pay based on hours worked?
The first step is understanding how your company manages overtime. Are hourly employees capped at a certain number of hours per week? Do salaried employees accrue overtime hours? Once you know how it is managed, you can begin calculating. Let’s use an example: an employee works Monday through Friday and averages 45 hours each week. To calculate their average pay rate per hour, divide the total amount they are paid by the total number of hours worked (45 hrs x $20/hr = $900/week).
To calculate their gross weekly pay rate without overtime included, divide the total amount they are paid by the total number of hours worked excluding overtime hours (45 hrs x $20/hr = $900/week). Next, we will calculate their gross weekly pay rate with overtime calculated. First, we need to determine if the employee qualifies for OT based on hours worked. If not, then there is no OT calculation needed.
If yes, then we must determine if the employee has maxed out their OT allowance for the week (50 hrs x $10/hr = $500). If not maxed out then take that answer ($500) and add it to their regular paycheck ($900) which equals $1,400; this would be their gross weekly pay rate with OT added in because they have surpassed 50hrs of OT in that work week.