How and When to Calculate Overtime Pay
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Do you have hourly employees who work more than 40 hours per week? If so, then they need to be paid for overtime!
With the U.S. Department of Labor soon releasing new overtime guidelines, knowing the details of your overtime policy is critical to continued success. For example, do you charge daily or weekly? Are you using the 1.5x standard rate?
Overtime compensation procedures can vary, so it's important to understand the intricacies to ensure your employees aren't underpaid. These processes can be very complex due to government laws, employee salaries and other factors. So let's make it easier for you.
What is Overtime?
Overtime occurs when a non-exempt employee exceeds a 40-hour work week and is compensated at a minimum of time and one-half their regular pay rate. This is required under The Fair Labor Standards Act (FLSA) to prevent employee exploitation. However, there are nuances to this because of different state laws—most importantly, how it is calculated.
Can Salaried Employees Receive Overtime Pay?
Typically, salaried employees are not considered for overtime pay; however, there are exceptions. First, it depends on whether or not the salaried employee is considered an exempt employee. In most cases, salaried employees are also exempt, which would mean that they are not eligible for overtime pay, no matter how many hours are worked during a workweek.
However, if a salaried employee is non-exempt, they may still be eligible for overtime pay.
How to Calculate Overtime
To calculate overtime pay, use the following formula:
Standard Hourly Rate x 1.5 = OT pay
For more examples and a deeper understanding of overtime pay, check out our blog: Time and a Half Calculations, With Examples.
When is overtime calculated?
In most cases, overtime is calculated on a weekly basis; however, there are some states that require overtime to be calculated daily. Daily overtime regulations are different in each of these states. Here are some examples:
Colorado: Overtime must be paid if working hours exceed 12 hours in a day.
Oregon: Overtime must be paid if daily working hours exceed 10 hours.
California: Any hours worked in excess of 8 hours in a day is considered overtime. Even if an employee works up to 8 hours on the seventh consecutive working day within the working week, he or she receives overtime for these hours. If an employee works more than 12 hours or more than 8 hours on the seventh consecutive day, he will receive at least twice the usual rate of pay.
Puerto Rico, the Virgin Islands, Alaska and Nevada: All require that workers be paid one and a half times the normal rate if they work more than 40 hours in a week or 8 hours in a day.
States that do not have specific overtime laws must adhere to the FLSA's federal overtime rule, which states that any employee who works more than 40 hours in a workweek must be paid time and a half for each additional hour.
What should employers know about overtime?
Employers should be familiar with government regulations regarding overtime pay. If you are a human resources professional working in multiple states, you need to be fully aware of each state's laws to ensure that each employee is properly paid for hours worked.
Tracking employees on an hourly basis is not only tedious, but also carries a high risk if calculations are incorrect. Some small employers still use time cards or even spreadsheets to track hours, but these methods are prone to errors - and no one likes a fake paycheck. When an employee works overtime, they look forward to the extra amount in their paycheck. Therefore, getting things done right the first time, every time, and on time is critical to your employees' ongoing satisfaction.
Your solution is an HRIS. A human resources information system utilizing a time and attendance feature will track hours worked and automatically calculate any overtime hours. This data naturally populates in an all-in-one HRIS’s payroll feature, so hours and overtime data are correct and on time each pay period. No more spreadsheets tracking attendance, time-consuming math for overtime needs, or angry employees missing their hard-earned money.
If you want to learn more about how HR technology can improve how your employees (and your boss!) view and trust your role, then chat with an expert at your convenience.
