Overtime pay calculation

Overtime is a 50% multiplier that is added to an employee’s base wage for hours worked over 40 hours in a work week. The intent behind paying overtime is to compensate employees for excessive work hours.

How to Calculate Overtime Pay

In general, follow these steps to calculate the amount of overtime pay owed to an employee:

  1. Determine whether the individual is eligible for overtime. The person might not qualify as an employee, or may instead be paid on a salaried basis, in which case overtime rules do not apply.
  2. Determine the hourly rate of pay, which is the total amount paid in the period divided by the number of hours worked.
  3. Multiply the hourly rate of pay by 1.5x.

     

    The calculation of overtime is subject to some variation by state, so review local regulations to see if there is an overriding overtime calculation in place. Here are two rules to consider when calculating overtime pay:

    • Do not include in the 40 base hours such special hours as holidays, jury duty, sick time, or vacations.
    • Add the shift differential to the base wage, and then calculate overtime based on this combined figure.

    There may be situations where an employee is paid different rates at different times during the work period. This situation may arise when the individual works on different jobs that have differing rates of pay associated with them. In these cases, you have three possible options for calculating overtime, which are:

    • Base the overtime rate on the highest wage rate paid during the period
    • Base the overtime rate on the average wage rate paid during the period
    • Base the overtime rate on the wage rate paid after the 40th hour

    The last alternative for calculating overtime requires the prior approval of the affected employee.

      Overtime Pay Calculation Example

      Alfredo Montoya works the evening shift at Electronic Inference Corporation, which adds $1 of shift differential per hour to his base wage of $15 per hour. In the most recent work week, he worked 50 hours. The overtime premium he will be paid is based on the combined $16 wage that includes his shift differential. Thus, his overtime rate is $8 per hour. The calculation of his total compensation for that week is:

      50 hours × aggregate base pay of $16/hour

      =

      $800

      10 hours × overtime premium of $8/hour

      =

      80

      Total compensation

      =

      $880