What is overtime?

Overtime refers to the number of hours an employee works beyond the standard 40-hour work week. The U.S. Department of Labor (DOL)  sets federal overtime pay and eligibility requirements  that employers must follow. Generally, covered non-exempt employees are entitled to compensation or overtime pay above their normal pay rate for every additional hour worked.

What is considered overtime?

• This   occurs during a single work week, or during seven consecutive 24-hour periods.
• It can be earned on any day of the calendar week.
• It accumulates only after 40 hours of work.

What is  not considered overtime  ?

• It is not required for regular work during nights and weekends (Saturday and Sunday).
• It is not required for regular work during holidays.
• It is not required for regular work during other rest days (e.g., religious observances).

Employees receive overtime pay on these days only if their hours worked in a week exceed 40. Some employers may choose to pay employees a higher rate if they work extra hours on these days.

How much is overtime pay?

According to the Fair Labor Standards Act (FLSA)  , overtime pay is 1.5 times the employee's regular hourly rate (or time-and-a-half). This is the federal minimum. Employers   pay this additional income on pay day for time earned during a  regular pay period .

Employers may compensate for overtime at a higher rate (or may be required to do so by state law in some areas). For example, an organization may pay double or more of an employee's hourly wage for extra hours worked.

How do you calculate time and a half?

Total overtime pay depends on the employee's  base salary  . Understanding how overtime works and how it is calculated ensures that you are following FLSA rules and helps create a sense of trust in your organization. Employers use this formula to calculate time and a half:

(regular hourly pay rate x 1.5) x number of overtime hours worked

Calculating Overtime Pay for Hourly Employees

Let's assume Ernie typically receives $15 per hour for a 40-hour work week, totaling a  gross pay of $600  . Last week, Ernie worked 45 hours. Here's how his employer calculates time and a half:

• Step 1:  $15 per hour x 1.5 = $22.50 per hour (overtime pay rate)
• Step 2:  $22.50 per hour x 5 hours of overtime = $112.50 (total overtime pay)

So for that week, Ernie   gets $712.50 in his pay (excluding pay cuts ).

Calculating Overtime Pay for Salaried Employees

Salary  vs.  hourly  alone does not determine whether someone gets overtime. In some cases, salaried employees  are not exempt under the FLSA  . To compensate salaried employees for overtime, start by figuring out their hourly rate using one of the methods below:

• Option 1:  Divide the employee's annual salary by 2,080 hours worked per year (fifty 40-hour work weeks and two weeks of  PTO  ).
• Option 2:  Divide the employee's weekly wage by 40 hours.

Then, the employer can calculate overtime pay for this salaried employee in the same way as it would for an hourly employee, using the formula above.

Overtime laws: Who is exempt from overtime pay?

Employers must first determine whether their employees are eligible for overtime and then make sure to pay them accordingly. An employee's  exempt status  depends on several factors, such as how much they are paid, whether they are salaried or hourly, and the type of work they do. The  DOL's Wage and Hour Division  classifies the following employees as exempt if they meet certain criteria:

• Executive Staff
• Administrative Staff
• Professional workers (e.g., scholarly professionals or creative professionals)
• computer worker
• outside sales staff
• Highly paid employees performing office or non-manual jobs

Federal overtime laws

 By 2020, an employee must earn less than  $35,568 annually to receive overtime for working more than 40 hours.  In 2023, the Wage and Hour Division proposed an update to increase the minimum wage and overtime pay requirements  . If approved, it would allow more people to receive overtime protections under the law.

As an employer, you generally must pay overtime if you meet the following conditions:

• You  are covered under the FLSA's overtime rules  .
• Your annual sales exceed $500,000.
• You operate in “interstate commerce” – meaning your business operates across state borders, including taking phone calls, sending mail or handling freight.

State Overtime Laws

All states must follow federal overtime laws. However,  some states  have their own rules that employers must also follow. For example, Alaska and California  have daily  overtime pay laws that entitle employees to a premium rate if they work more than eight hours in a single workday. If state and federal overtime laws differ, the employer must follow the rule that most benefits the employee.

Is mandatory overtime legal?

In most cases, employers are allowed to require overtime work. Mandatory overtime, or mandatory overtime, is legal under the FLSA if:

• The employee is paid at the legal rate for hours worked overtime.
• Overtime does not pose any “safety risk” to employees.
• Overtime does not violate any employee contract.
• The employer is following its state-specific overtime laws.

Tracking Overtime in Payroll

When you run payroll, be sure to always include overtime pay in your employees' paychecks. Keeping a record of all your time-and-a-half payments proves that your company has met all FLSA requirements and follows the most current state/federal compensation laws.