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How to Calculate Overtime Pay: The HR Managers' Guide
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Written by: Rinaily Bonifacio
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Last updated: 10 April 2025
Table of contents
What is overtime pay?
Overtime pay is the premium pay that employers are required to provide to nonexempt employees when they work more than the federally determined threshold in a workweek, typically more than 40 hours. It's a form of compensation that ensures employees are rewarded for the extra hours they put in beyond the regular workweek. The federal law, under the Fair Labor Standards Act (FLSA), mandates the overtime pay rate at no less than one and a half times the employee's regular rate, colloquially referred to as 'time and a half'.
Overtime pay becomes crucial in industries where long hours are commonplace, safeguarding employees' rights and providing employers with a structured approach to managing overtime hours.
Whether it's hourly employees putting in additional time or salaried employees occasionally extending their workweek, understanding overtime pay lays the foundation for equitable compensation, compliance with labor laws, and fostering a balanced work culture.
How to calculate overtime pay?
Federal Law: The Fair Labor Standards Act (FLSA) dictates that non-exempt employees must receive overtime pay for hours exceeding 40 in a workweek. It's calculated by multiplying the overtime hours by the employee's regular pay rate, then multiplying that number by 1.5 (time and a half).
Formula: Overtime Pay = (Overtime Hours) x (Regular Pay Rate) x 1.5
Example: An employee who works 48 hours a week with a regular pay rate of $20 earns $240 in overtime pay: (8 hours) x ($20) x 1.5 = $240
Keep in mind:
- Overtime is calculated per workweek, not based on daily or bi-weekly pay periods.
- Some states have stricter overtime laws than federal regulations. Always check your state's Department of Labor website for specific requirements.
- Different overtime rules apply to exempt employees (salaried executives, administrative personnel, etc.). Consult the FLSA for details.
Who is entitled to overtime pay?
The question of who is entitled to overtime pay brings us to the dichotomy of exempt vs nonexempt employees, a distinction critical in understanding the landscape of overtime pay.
Exempt Employees
Exempt employees, by definition, are exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). They do not receive overtime pay, irrespective of the number of hours they work beyond the regular 40 hour workweek. The FLSA categorizes certain job duties as exempt, often those that involve executive, administrative, or professional capacities.
To qualify as exempt, employees must typically earn a salary basis that's at least twice the minimum wage, and their job duties must fall into one of the FLSA's exempt categories. This often includes roles in executive management, administration, outside sales, and certain computer-related roles. However, not all salaried employees are exempt. Even if an employee receives a salary, if their job duties don't fall into the exempt category, they may still be entitled to overtime pay.
Nonexempt Employees
Nonexempt employees are those who qualify to receive overtime pay when they work more than 40 hours in a workweek. These usually include hourly employees and some salaried employees whose job duties do not classify them as exempt. When these employees exceed the 40 hour workweek, they must receive overtime pay, calculated as at least time and a half of their regular rate.
Examples of nonexempt roles often include production roles, administrative assistants, manufacturing roles, construction roles, contractors, police officers, firefighters, retail associates, and paramedics.
State regulations may also impact overtime pay eligibility, often providing even greater protections than the FLSA. In situations where employees are subject to both state and federal overtime laws, they receive overtime pay according to whichever law is more generous.
Holiday overtime pay
Holiday overtime pay is an important aspect of employee compensation that requires careful attention. For many businesses, holidays often mean more business hours, leading to employees working extra hours and therefore being eligible for overtime pay. However, it's worth noting that federal law does not require employers to provide overtime pay for work done on holidays, unless those hours contribute to the total hours worked in excess of a 40 hour workweek.
The Fair Labor Standards Act (FLSA), the federal law that sets minimum wage and overtime pay standards, does not mandate holiday pay beyond the standard rate of pay. This means that unless a business has a specific policy or a collective bargaining agreement in place that stipulates holiday pay rates, it isn't a federal requirement to pay employees at an overtime rate for hours worked on a holiday.
However, many employers voluntarily choose to offer 'holiday pay' or 'holiday premium pay.' In such cases, an employer may pay employees time and a half, or even double time, for hours worked on holidays, as a token of appreciation for their commitment and hard work.
Employers should clearly communicate their holiday pay policies to their employees to avoid any confusion. It's also crucial to accurately track employee hours during holiday periods to ensure correct overtime pay calculations.
Ultimately, holiday overtime pay can differ significantly from one organization to another, largely dependent on the employer's policies and sometimes on state laws. As such, it's important for both employers and employees to understand the specifics of their own workplace when it comes to overtime and holiday pay.
How does overtime pay work?
While not mandated by federal law, some states and individual companies offer double overtime pay. This means employees receive twice their regular hourly rate for hours worked beyond a specific threshold.
For example, California mandates double overtime pay for hours exceeding 12 in a workday.
Key points to remember:
- Double overtime is not federally mandated, so check your state's labor laws.
- Companies can offer double overtime voluntarily at their discretion.
- It typically applies to hourly employees, not salaried exempt employees.
How to calculate double overtime:
Calculating double overtime depends on whether you're referring to hours worked beyond a certain threshold within a single workday (sometimes called daily double overtime) or hours exceeding a specific limit after already working overtime in a workweek (sometimes called weekly double overtime). Here's how to tackle each:
Daily Double Overtime:
- Identify the threshold for double overtime: This could be set by state law, company policy, or union agreement. It's typically higher than the standard overtime threshold of 8 hours in a workday, often falling around 12 hours.
- Calculate regular pay for non-overtime hours: Multiply the employee's regular hourly rate by the number of hours worked below the threshold.
- Calculate overtime pay for standard overtime hours: Subtract the threshold from the total hours worked. Multiply this number by the employee's regular hourly rate and then by 1.5 (time and a half).
- Calculate double overtime pay: Subtract the threshold and standard overtime hours from the total hours worked. Multiply this number by the employee's double overtime rate, which is typically twice their regular hourly rate.
- Sum the earnings from each section: Add the regular pay, overtime pay, and double overtime pay to find the employee's total earnings for the day.
Example: An employee in a state with daily double overtime after 12 hours works 14 hours at a regular rate of $20 per hour.
- Regular pay: 12 hours * $20/hour = $240
- Overtime pay: (14 hours - 12 hours) * $20/hour * 1.5 = $30
- Double overtime pay: (14 hours - 12 hours - 2 hours) * $20/hour * 2 = $40
- Total earnings: $240 + $30 + $40 = $310
Weekly Double Overtime:
- Identify the threshold for double overtime: This could be set by state law, company policy, or union agreement. It's typically higher than the standard overtime threshold of 40 hours in a workweek, often falling around 60 hours.
- Calculate regular pay for non-overtime hours: Multiply the employee's regular hourly rate by the number of hours worked below 40.
- Calculate overtime pay for standard overtime hours: Subtract 40 hours from the total hours worked. Multiply this number by the employee's regular hourly rate and then by 1.5 (time and a half).
- Calculate double overtime pay: Subtract the standard overtime hours from the total hours worked after exceeding the double overtime threshold (e.g., if threshold is 60, subtract 40 from hours exceeding 60). Multiply this number by the employee's double overtime rate, which is typically twice their regular hourly rate.
- Sum the earnings from each section: Add the regular pay, overtime pay, and double overtime pay to find the employee's total earnings for the week.
Remember: These are general guidelines, and specific calculations may vary depending on your location, workplace policies, and individual circumstances. Always consult the relevant regulations and double-check your calculations to ensure accuracy.
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Frequently Asked Questions
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While overtime itself isn't taxed at a higher rate than regular wages, it can indirectly increase your tax burden in two ways:
1. Pushing you into a higher tax bracket:
- The US tax system uses a progressive tax structure, meaning higher income earners pay higher tax rates.
- If your overtime pay bumps your total income into a higher tax bracket, only the portion of income within that bracket will be taxed at the higher rate. The rest remains taxed at your regular rate.
Example: Let's say your regular pay puts you in the 22% tax bracket and you earn $200 in overtime. If this pushes your total income for the week above the threshold for the 24% bracket, only the $200 exceeding the threshold will be taxed at 24%. The rest remains at 22%.
2. Increasing federal payroll taxes:
- All employees and employers contribute to Social Security and Medicare through payroll taxes, typically deducted from each paycheck.
- These taxes have a tax cap on the amount subject to the tax (in 2024, it's $160,200 for Social Security and $200,000 for Medicare).
- If your combined regular and overtime earnings exceed the cap, only the portion exceeding the cap will be exempt from these taxes. However, Medicare has an additional 2.35% tax on all wages, regardless of income level.
- The US tax system uses a progressive tax structure, meaning higher income earners pay higher tax rates.
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The FLSA doesn't mandate a specific notice period for mandatory overtime.
However, it's considered best practice to provide reasonable notice to employees, considering factors like:
- The nature of the work and urgency.
- Employees' personal situations and childcare arrangements.
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Any applicable collective bargaining agreements.
Providing reasonable notice demonstrates respect for employees and helps minimize disruption.
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The FLSA exempts certain categories of employees from overtime pay requirements. These "exempt" employees usually have specific duties and salary thresholds:
- Executive employees: Manage at least two or more full-time employees and their work, with significant discretion and independent judgment. They typically earn a minimum salary of $107,100 per year (2024).
- Administrative employees: Non-manual work directly related to management or general business operations, using discretion and independent judgment. Minimum salary requirement of $684 per week ($35,568 per year in 2024).
- Professional employees: Learned or artistic professions requiring advanced knowledge and intellectual work. Minimum salary requirement of $107,100 per year (2024).
- Executive employees: Manage at least two or more full-time employees and their work, with significant discretion and independent judgment. They typically earn a minimum salary of $107,100 per year (2024).
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Yes, it is illegal under the FLSA for employers not to pay nonexempt employees overtime when they work more than 40 hours in a workweek. Employers who fail to do so may be subject to penalties, including paying back wages and damages.
However, exempt employees, as defined by the FLSA, are not entitled to overtime pay, regardless of the number of hours they work.
Written by:
Rinaily Bonifacio
Rinaily is a renowned expert in the field of human resources with years of industry experience. With a passion for writing high-quality HR content, Rinaily brings a unique perspective to the challenges and opportunities of the modern workplace. As an experienced HR professional and content writer, She has contributed to leading publications in the field of HR.
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