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4 Min. Read

How Is Overtime Calculated: A Step By Step Guide

How is Overtime Calculated: A Step By Step Guide

Overtime laws are a complex issue that often causes headaches for accountants and business owners all over the world. There are too many factors to consider. Calculating overtime pay may become a complicated mathematical equation.

How do you calculate the weekly salary of an employee? What about salaried employees? In the sections below, we show you how to calculate regular hours, overtime hours, hours per week, and more.

But before we delve and deeper into this topic, let's start with the basics and define overtime. We'll also cover overtime wages, regular pay rates, overtime hours, hourly rate, weekly salary, and so on.

If an employee works more than a certain number of hours during the pay period (in most cases a week), this type of overtime is called overtime. Overtime pay is more than normal working hours. For example, in California, more than 8 hours a day is considered overtime.

The standard work week also varies from country to country. There are 44 hours in Canada. A 40-hour workweek in the United States (and most other countries in the world). Thirty-eight hours in the United Kingdom, and 35 hours in France.

Here’s What We’ll Cover:

Time-And-A-Half or Double Time Overtime Rates

Banked Overtime

Eligibility for Overtime

How to Calculate Overtime

Key Takeaways

Time-And-A-Half or Double Time Overtime Rates

In most cases, overtime pay is 1.5 times the employee’s normal pay, known as time and a half. There is a notable exception, however; that being California. There, workers who work 8 to 12 hours a day are paid a rate of one and a half. And the number of hours exceeding the 12-hour limit is doubled their usual standard rate of pay. In California, if a worker works for 7 consecutive days, he has the right to double it after the first 8 hours of the 7th day.

Banked Overtime

In countries such as Canada, workers can get paid holidays instead of overtime. This is sometimes called overtime or vacation. If the employee agrees to register for overtime, he must be paid 1.5 hours. Free time for hourly overtime; however, this paid vacation must be taken within 3 months of earning overtime.

Eligibility for Overtime

Certain employees may not be eligible for overtime pay, depending on their specific duties. Workers are responsible for unpaid overtime. They need to consider whether their employees can be exempted from overtime pay. In the United States, employees are considered employees. If they meet certain standards of the Fair Labor Standards Act (FLSA), they are exempted:

You work in an administrative, professional, executive position. Or, you’re outside of sales.

You make more than the minimum threshold (an annual salary of $35,568 or a weekly compensation of $684)

Tax-exempt ratings are applied on a case-by-case basis, and are not based solely on employees’ job titles or the fact that they are paid.

How to Calculate Overtime

In order to be able to calculate the employee’s overtime pay, we must first determine his usual hourly wage. This is because this is the basis for further calculations. Once we do this, the rest is easy.

Single Hourly Rate

Let’s assume that an hourly employee gets paid $20 an hour and works 50 hours per week. You would calculate their overtime pay as follows:

$20 x 1.5 (overtime rate) x 10 hours of overtime = $300

$800 + $300 = $1100 (total)

Multiple Hourly Rates

Now let's say an employee does two different jobs with the same employer at different hourly pay rates. They worked 20 hours per week at an hourly rate of $20, and 30 hours with $30 hourly rate. Their normal wage rate for that week will be the weighted average of the two, and hours of overtime are calculated as follows:

$20 x 20 hours + $30 x 30 hours = $1300

$1300 / 50 hours = $26

$26 x 1.5 (overtime rate) x 10 hours of overtime = $390

$1300 + $390 = $1690 (total)

Daily Rate

An employee works 5 days a week, 50 hours a week, and pays $100 a day. To calculate their regular rates, we need to divide their total weekly income by the number of hours they work. Their overtime hours are calculated as follows:

$100 x 5 = $500

$500 / 50 hours = $10 (regular rate)

$10 x 1.5 (overtime rate) x 10 hours (overtime) = $150

$500 + $150 = $650 (total)

Key Takeaways

In most cases, overtime calculation is a fairly simple process, but as always, the details determine success or failure. Rates, employee qualifications, work schedules, and ever-changing legislation. There's a lot of information that you have to keep up with to ensure your calculations are correct. For assistance, FreshBooks makes paying your employees quick and simple.

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