Here’s an HR word problem for you: Luis in the install department makes $15 an hour and normally works 40 hours a week Monday through Friday. This week, he worked 46 hours and 10 of those hours were on a Saturday. How much overtime pay is owed to Luiz?
The answer is $135. Learn how to calculate overtime pay below to find out how to arrive at these answers correctly. Getting the math right on overtime pay every time is important!
What Is Overtime Pay?
Overtime pay is a premium wage amount that you pay employees when they work more than a standard number of hours. The premium pay serves a number of purposes, including rewarding team members for putting in extra time to get work done during a pay period.
To track hours worked and ensure you have the information you need each pay period to calculate paychecks accurately, it’s a good idea to invest in time and attendance solutions. Find out more about the employee time tracking services offered by America’s Back Office.
Why Is It Important to Understand Overtime Pay?
Overtime pay is mandated by the federal government for non-exempt, covered employees (more on that below). Many states also have their own laws about overtime. Depending on the situation, legal penalties for failing to comply with proper overtime pay could be double or triple the amount you should have paid to begin with.
Miscalculating or failing to pay overtime at all also does a disservice to your employees. Some consequences of this might include:
- Reduced employee morale, which can lead to lower productivity, higher error rates, and poorer customer experience.
- Reduced team member loyalty, which can lead to higher attrition rates and greater hiring costs.
- Poor employer branding, which can make it harder to find the best talent when you do need to hire.
When to Pay Overtime
The Fair Labor Standards Act requires that most employers pay people a premium when they work more than 40 hours in a seven-day pay period. That premium must be at least 1.5 times the person’s base hourly wage.
The FLSA doesn’t require you to pay overtime just because someone works outside of normally scheduled hours — such as on a weekend or holiday — if those work hours didn’t bring the person above 40 hours in the week.
The FLSA also provides some exemptions to overtime requirements. People who are in executive, administrative, or professional roles that are paid salary don’t necessarily have to be paid overtime. You also don’t have to pay outside sales employees overtime when they work more hours.
These are general notes on the FLSA, though. It can get a bit complicated to apply these rules in specialist situations, so if you aren’t sure on which side of the line your employees fall or how state laws might impact overtime, consider an HR consultation with America’s Back Office.
How to Calculate Overtime
Calculating overtime is fairly simple once you know how many hours over standard the employee worked. Here are a few examples to help you understand how to calculate overtime.
Let’s look more in-depth at the example from the beginning of this article. Luis’s base pay is $15 per hour. He worked 46 hours this pay period, and 10 of them fell on Saturday.
The 10 hours falling on Saturday in this case is inconsequential. What matters for calculating pay is that 46 hours were worked:
- 40 regular hours at $15 per hour is $600.
- 6 overtime hours would be paid at $15 x 1.5, which is $22.50. Multiply $22.50 by 6, and you get $135.
Luis gets $600 of regular pay and $135 of overtime pay for a total of $735 for that pay period.
That’s a simple example. Let’s look at another hypothetical situation with a bit more information:
Jessie gets paid $20 an hour and worked the following hours:
- Sunday: 3
- Monday: 8
- Tuesday: 10
- Wednesday: 8
- Thursday: 8
- Friday: 10
- Saturday: 0
- Sunday: 5
- Monday: 8
- Tuesday: 8
In this case, how much overtime needs to be paid to Jessie depends on when the pay period runs. For example, if your pay periods start on Mondays, then the pay week runs Monday through Sunday (for a total of 7 consecutive days).
Employers can pick any day of the week to start pay weeks on. Once you pick the day, though, you can’t swap back and forth on the schedule at will.
So, in a Monday through Sunday pay week, you would count the hours starting at the first Monday listed above and go through the second Sunday. The numbers would be 8, 10, 8, 8, 10, and 5, or a total of 49 hours.
The overtime calculation in that case would be 9 x 20 x 1.5 = $270 in overtime pay.
But what if the week starts on Tuesday? That would mean you would pick up the hours from the first Tuesday in the list to the second Tuesday. Those numbers would be 10, 8, 8, 10, 5, 8, and 8, or a total of 57 hours.
In this case, Jessie would have worked 17 hours of overtime. The overtime pay calculation would be 17 x 20 x 1.5 = $510. That’s a very different number!
This is one reason you have to keep impeccable records when it comes to payroll. It’s also important to educate employees about when the pay period runs to avoid misunderstandings. Imagine if Jessie thought she was getting $510 in overtime only to see $270 on her check, for example.
How America’s Back Office Can Help
From specific tasks to overall HR administration, America’s Back Office can help you stay ahead of the game and compliant with payroll and other processes. If you’re unsure how to calculate overtime pay or need help maintaining payroll records, reach out to us today.
