Calculating overtime pay continues to be a hot topic. The Department of Labor recently introduced its new federal overtime provisions of the Fair Labor Standard Act (FLSA) to redefine the current boundaries of who is eligible to receive overtime pay. The new rule updates the minimum salary thresholds, which were set in 2004, and goes into effect January 1, 2020. The law:
- Raises the Fair Labor Standards Act (FLSA) “white collar” exemptions from $455/week to $684/week.
- Raises the total annual compensation requirement for highly compensated employees from $100,000 to $107,432 per year.
- Allows employers to use bonuses and incentive pay (including commissions) to satisfy up to 10% of the standard salary level.
Let’s dive into some key factors to remember when calculating overtime.
Who Can Receive Overtime Pay?
In the workplace, you’re either considered an “exempt” or a “non-exempt” employee based on your specific job duties. Only non-exempt employees are eligible for overtime pay according to the FLSA. Employers are required to pay at least the federal minimum wage ($7.25) for regular hours and an overtime pay rate of one-and-a-half times the employee’s regular rate for any hours worked over 40 during a workweek. Keep in mind states’ minimum wages may be greater than the federal minimum.
The workweek is considered any 168 hours in seven consecutive 24-hour periods that can begin on any day and at any time. It’s not necessary that all employees of a company have the same workweek, but once a workweek is established by the employer, it’s best to remain consistent to avoid paying overtime.
Some states have their own overtime labor laws or exceptions that supersede federal mandates. For instance, no federal laws require an employer to pay double time, but some state laws do. Be sure to review the regulations issued by your state’s department of labor.
Track the Number of Overtime Hours
It’s important to keep an accurate record of the regular and overtime hours worked by employees in case of an audit. Any time an employee is “on duty,” that hour counts toward the 40 total hours allowed at regular pay. This includes if employees are required to be at a certain location to begin work or remain at the place of business to perform services.
Some common examples of activities that generally aren’t included in the regular hours worked:
- Paid time off
- Travel to and from work
- Checking in and out of the workplace
- Breaks totaling more than 20 minutes (possible exception: sleeping time on long shifts)
Unless you have a policy that states employees aren’t allowed to work certain hours, all hours worked in excess of 40 hours per workweek must be paid time and a half.
Calculating the Regular Rate of Pay
An employee’s regular rate of pay is based on the amount of calculated earnings divided by the number of hours worked. This includes a base rate and any additional compensation such as commission or nondiscretionary bonuses. The chart below explains what is included in determining the regular rate of pay.
|Included in Regular Rate||Not Included in Regular Rate|
|Nondiscretionary bonuses (including commissions)||Discretionary bonuses|
|Production bonuses||Pay for unworked hours|
|Cost of living adjustments||Overtime in excess of FLSA rules|
|Shift premiums||Reimbursed expenses|
|Retroactive pay||Employer benefit plan contributions|
|Noncash compensation||Gifts on special occasions|
|Other payments not excluded by law||Non-taxable earnings|
See the examples below for a better understanding of how to calculate overtime for both hourly employees and salaried non-exempt employees.
Calculate Overtime Pay for an Hourly Employee:
The Paper Company paid Tom a production bonus of $200. He worked 48 hours this week and is paid $9 per hour.
48 (all hours worked) x $9 (the hourly rate) = $432
$432 (regular earnings)
$632 total gross earnings
$632 ÷ 48 hours = regular rate of $13.17
$13.17 x 0.5 = overtime pay of $6.59 per hour
$6.59 x 8 hours = total overtime due of $52.72
Tom’s total gross earnings: $632.00 + $52.72 = $684.72
Calculate Overtime Pay for a Salaried Non-Exempt Employee:
Sam is a call center employee who agreed to weekly pay of $600. She works fluctuating hours every week. Under the FLSA, her agreement does not waive her right to overtime pay. Last week she worked 44 hours and was also awarded a commission of $50.
$600 regular earnings
$650 total gross earnings
$650 ÷ 44 hours = regular rate of $14.77
$14.77 x 1.5 = overtime pay of $22.16 per hour
$22.16 x 4 hours = total overtime due of $88.64
Sam’s total gross earnings: $650 + $88.64 = $738.64
Any employer who violates overtime compensation laws may be liable for backpay to the employee as well as damages and fines. Visit the Department of Labor for more information regarding wages and hours worked.
Paycor Time can help track and predict overtime expenses. With the overtime dashboard, you can monitor the amount spent and break it down by department, manager or location, helping you to make better decisions about labor costs.