How To Calculate Overtime
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Calculating overtime isn’t complicated once you understand the federal and state rules. Things only get a little trickier when it comes to computing overtime for salaried non-exempt employees. We have created this post to make things a lot easier for you. Keep reading to learn more about how to calculate overtime pay.
Qualifying For Overtime Pay
The Department of Labor (DOL) sets overtime pay rules through the Fair Labor Standards Act (FLSA). It requires that qualified and non-exempt employees get paid overtime when hours worked exceed 40 hours in any given week.
Eligibility largely depends on an employee’s salary level, job duties, and the job’s skills. Generally, FLSA exempts administrative, executive, professional, computer employees, outside sales, and highly compensated employees.
Some states have local overtime rules and other labor laws that supplement the provisions under the FLSA. Be sure to verify with your state’s Department of Labor for compliance.
FLSA Salary Level Changes That Affect Overtime Pay In 2020
Previously, the salary level for exempt employees was $455 per week (equivalent to $23,660 annually). On January 1, 2020, the Department of Labor officially raised the minimum salary for overtime exemption to $684 per week ($35,568 annually).
An employee whose weekly salary is under $684 is subject to overtime unless their job duties fall under the exempt category.
The new overtime regulation also increased the annual salary of highly compensated employees, from $100,000 to $107,432.
Legal Overtime Pay Rate
The minimum rate under the FLSA is one-and-a-half (1.5) times an employee’s standard hourly salary, except for Chinese overtime. When computing overtime, an employer must include bonus payments as part of a worker’s regular rate. There are some exceptions, though.
The decision to pay employees more than the federal and state minimum overtime rate is up to you, the business owner. You can even abandon the 40-hour workweek and adopt overtime starting at lower hours per week.
How to Calculate Overtime Pay for Hourly Employees Step By Step
Overtime pay is an employee’s hourly rate x overtime rate (1.5) x additional work hours. To make it easier for understanding, we’d like to give an example.
· Maria earns $14 per hour.
· She works 45 hours during a given workweek.
How much will she receive as overtime?
Step 1: Verify if Maria is indeed a non-exempt employee ($14 x 40 hours = $560 per week). Maria qualifies for overtime.
Step 2: Determine her hourly rate for overtime; regular hourly rate ($14) x minimum overtime rate (1.5) = $21.
Step 3: Determine overtime pay; the number of additional hours (5 hours) x hourly rate for overtime $21 = $105.
Maria’s total salary for that week would be $665 ($560 + $105)
Calculating Overtime for Salaried Employees
As mentioned earlier, salaried employees earning less than $684 weekly or $35,568 annually may receive overtime wages. There isn’t a big difference between hourly and salaried employees when it comes to overtime calculation.
Method 1: Dividing Annual Salary by 2080 Hours
The standard annual working hours for salaried workers are 2080. In other words, the employees get paid for a total of 52 weeks, with every workweek having 40 hours.
Based on this assumption, it is easy to determine the hourly rate of an employee. For example, if an employee earns $33,300 per year, their hourly rate is $16.00 ($33,300 ÷ 2080).
Once you already know the hourly rate, follow the above steps to compute overtime.
Method 2: Dividing Weekly Salary by Regular Work Hours
Not all job types require a 40-hour workweek. For example, if a company sets the regular work hours at 35, an employee can only get overtime if they work over 40 hours.
In such a case, here’s how to calculate overtime pay.
Let’s say an employee gets paid $595 per week based on 35 regular work hours. Their hourly rate is $17 ($595 ÷ 35). If in a given week they work 50 hours, then their overtime pay would be $17 (hourly rate) x 1.5 (minimum overtime rate) x 10 (additional hours).