Many workers are confused about overtime pay. The codes and numbers on pay stubs don’t make any sense. Here’s an explanation of overtime pay in the simplest terms. You will find out how to calculate it for hourly and salaried employees, bonus pay, and jobs with more than one pay rate.
What Counts as Overtime
The majority of overtime regulations have one fundamental concept. You get overtime pay if you work over 40 hours per week. The extra pay rate is usually 1.5 times your normal rate. This is referred to as “time and a half”.
There are more stringent rules in some states. Some require overtime pay after the first 8 hours worked in a single day. Be sure to review your state’s labor laws as they may vary from federal regulations.
Regular hours should be a line item on your pay stub, and overtime hours should be a line item on your pay stub. If you don’t notice this split, request a more detailed split from your employer, or check our guide on reading your pay stub to see exactly what each section means.
How to Calculate Hourly Overtime Pay
This is the easiest scenario. Use your hourly rate. To calculate the overtime rate, multiply it by 1.5.
Consider this example. The hourly wage is $20. Your overtime rate is $30 per hour ($20 x 1.5). Working 45 hours in a week will result in 40 regular hours and 5 overtime hours being paid for.
- 40 hours x $20 = $800
- 5 hours x $30 = $150
- Total pay = $950
Both amounts should be listed on your pay stub. Total them up to see how much you earned for the week.
Overtime for Salaried Workers: How to Calculate It
There is another rule that salaried employees are eligible for overtime if they are not exempt. According to federal law, exempt employees are not entitled to overtime pay. Exempt status depends on the job duties and level of pay rather than merely the job title.
If you are non-exempt and are paid a salary, you must determine your hourly rate first. Calculate your hourly wage by dividing your weekly wage by the number of hours your wage covers (normally 40 hours).
Assume that you earn $800 for 40 hours per week. Your hourly rate is $20 ($800 divided by 40). The overtime rate is $30/hour as in the hourly example above.
The 45-hour rule still applies to the salary of $800. Next, you take 5 hours overtime at $30 per hour, or $150. That week, you earn a total of $950.
There is another method known as the fluctuating workweek method used by some companies. This approach takes into account the number of hours worked, rather than a predetermined number. This may reduce your overtime pay during weeks where you are working overtime. Review your pay stub notes or inquire with HR what process your company uses.
Impact of Bonuses on Overtime Pay
Overtime rates may be increased by bonuses, and this is a surprise to many workers. If a bonus is related to work performance, hours, or production, the bonus should be included in your regular rate before overtime is calculated. This bonus is known as a “non-discretionary bonus”.
Let’s assume your hourly wage is $20 along with a production bonus of $40 every week. First, take the bonus and add it on top of your weekly pay. Afterwards, divide by the total hours worked to determine your new regular rate.
In this case, you worked 45 hours at $20/hour, which is $900 in straight-time wages, plus a $40 bonus. Add them together: $900 + $40 = $940 in total straight-time pay.
To find your regular rate for overtime, divide that total by all the hours you worked: $940 / 45 hours = $20.89 per hour.
Since you have already been paid straight time for all 45 hours, you are owed an extra half of the regular rate on your 5 overtime hours: 5 x ($20.89 x 0.5) = $52.22.
Adding your straight-time pay ($940) and the overtime premium ($52.22) gives you a total gross pay of $992.22 for the week.
Discretionary bonuses are different. They are not related to performance, such as a holiday gift. You don’t need to put these into your overtime rate.
How to Calculate Overtime With Multiple Pay Rates
Rates may vary for different activities in some jobs. A worker could work at two jobs for the same employer in the same week and earn $18 an hour at one job and $22 an hour for the other job.
When this happens, employers must calculate a “weighted average” rate for overtime. This is a combination of rates on the basis of the number of hours you worked each of them.
Consider this example. You earned $18.00 an hour for 30 hours of work and $22.00 an hour for 15 hours of work. That’s a total of 45 hours.
First, work out the total pay received from both rates:
- 30 hours x $18 = $540
- 15 hours x $22 = $330
- Total pay = $870
Then, take the total pay and divide by total hours to obtain the weighted average rate. $870/45 hours = $19.33 per hour.
Now determine overtime premium. You are only owed the overtime half rate on the 5 overtime hours since you already get paid straight time for the 45 regular hours you work. Half of $19.33 is $9.67.
Calculate 5 x 9.67 hours of overtime. That translates to $48.33 more overtime. This is in addition to your straight-time pay of $870. You earned a total of $918.33 this week.
But some employers use an alternative, simpler method. They use the overtime rate for whatever job you were working at during the overtime hours. Verify your work contract or enquire from HR about the process.
How to Review Your Pay Stub for Errors
Now that you know the math, check it against your pay stub. Check for the following information:
- The rate at which you are normally paid by the hour or by salary
- Your total hours worked & overtime hours worked individually
- The overtime rate (should be listed or easy to calculate)
- Bonus pay and if it affected overtime pay rate
- Deductions like federal withholding tax, which can make your net pay look different from your gross calculations
If the pay stub numbers don’t match up with your calculations, request an explanation from your payroll staff. Over time, things can get out of control with small mistakes, particularly if they happen every pay period.
Closing Remarks
While overtime pay math may appear to be confusing, the basic concept remains easy to understand. Extra pay is paid for overtime and may be increased by bonuses and/or multiple pay rates. Reviewing your pay stub against calculations will help you to identify any errors in your paycheck and ensure that you are being paid correctly for your hours.
