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Time Tracking

What Does Overtime Pay Mean? How to Calculate Time and a Half

Cassio Sagawa
August 27, 2021
6 minutes to read

Overtime (OT) pay is the hourly wage that employers owe to employees who work more than 40 hours in a workweek. Specifically, if an employee who gets paid by the hour works more than 40 hours in a week, by law their employer must pay them time and a half for the additional hours, or 1.5 times their hourly wage. 

The good news is, if you need to pay your employees overtime, that means there’s no lack of demand for your company’s services. What’s more, no matter the size of your business, you can use tools that make it easy to calculate and pay employees for the overtime they accrue. 

How to Calculate Overtime Pay

The overtime pay calculation is simple: for a given week, track the amount of time your employee worked. Find out how many hours they worked over 40. Then, multiply their pay rate by 1.5 (time and a half). Finally, multiply this time-and-a-half pay rate by the number of overtime hours they worked. This will give you the amount you owe them for overtime.

The formula for overtime pay looks like this:

  • Hourly rate of pay (H) x overtime rate (1.5) = OT.

For example:

  • If the employee worked 45 hours and their hourly wage is $18: 
    • $18 multiplied by 1.5 equals $27;
    • Multiply $27 by 5 (the number of overtime hours), which equals $135 — the amount you owe them for overtime.
    • Multiply $18 by 40, which equals $720 — the amount you owe them for the standard workweek.
    • Add $720 and $135, which equals $855 — the amount you owe them for all hours worked.  

This is the basic math of overtime, but the reality is more complex. With remote work and flexible schedules becoming the new norm, you’ll need to know how to account for varying workweeks.

How Time and a Half Works for Flexible Schedules

When you’re calculating time-and-a-half overtime pay for employees with flexible schedules, the unit of time you want to look at is the seven-day workweek. So, if your business’s pay period is biweekly, break that down into weekly chunks. Hourly employees who work for more than 40 hours over a seven-day timespan must receive overtime.

When it comes down to it, the complexities of today’s work world mean you may have a variety of employees adhering to a variety of schedules. According to a survey from Upwork, 26.7% of employees worked remotely in 2021; by 2025, over 36 million Americans will be working remotely. 

Since remote work and flexible schedules are more prevalent now than ever, you’ll need a scheduling solution that allows for a certain amount of flexibility. If there’s not enough work to justify overtime on any given week, use the scheduling software to limit the number of hours an employee can work that week. That way, they can work within their own parameters day to day, but they will not be able to exceed 40 hours in the week.

Flexible schedules work especially well for salaried employees who are focused on task completion instead of working a set number of hours. However, you may need to account for overtime with your salaried employees as well. By law, some salaried employees are exempt from receiving overtime, but others are not. How much the salaried employee makes is the determining factor. Read on to find out more. 

Calculating Overtime Pay for Salaried Employees   

You don’t normally need to track a salaried employee’s time and sum up their overtime hours because they’re exempt from the overtime-pay law. The Department of Labor’s Fair Labor Standards Act (FLSA) specifies that certain salaried employees are exempt from the overtime pay requirements. To be exempt from overtime, the following employees must make at least $684 per week:

  • Executives such as chief executive officer, chief operating officer, chief financial officer; 
  • Administrative employees such as managers;
  • Professional employees such as teachers, lawyers, doctors, engineers;
  • Computer employees such as engineers, programmers;
  • Outside salespeople;
  • Highly paid employees who make at least $107,432 per year.

The DOL set the $684-per-week salary requirement for these employees on January 1, 2020. Before that, salaried employees who were exempt from earning overtime pay had to make at least $455 per week.

It’s not hard to imagine a scenario in which an employer wasn’t able to raise their salaried employee’s pay rate to $684 per week. After all, the pandemic hit businesses hard. If any of your salaried employees still make less than $684 a week, you’ll need to track their overtime hours and compensate them accordingly.

Time and a Half for Salaried Workers 

Here’s how to calculate a salaried employee’s overtime pay:

  • Divide their weekly salary amount by 40 to calculate the applicable hourly rate;
  • Multiply the hourly rate by 1.5 to find the OT rate;
  • Multiply the OT rate by the amount of time they worked over 40 hours to find the total amount of OT pay you owe them;
  • Add the total amount of OT pay to their weekly salary to calculate the total weekly paycheck. 

For example: 

  • If they make $455 per week, $455 divided by 40 equals $11.37.
  • Take this hourly rate of $11.37 and multiply it by 1.5, which equals $17.05 — the amount you owe them for OT.
  • Multiply $17.05 by the number of overtime hours they worked; if they worked 43 hours, $17.05 multiplied by 3 equals $51.15.
  • Add $51.15 to $455 to obtain $506.15 — the total amount you owe them for the 43-hour workweek. 

 

Let’s examine a scenario in which you might need to pay a salaried worker overtime. You have a traveling sales rep who earns commissions for each sale they make, and commission can count as salary. But for whatever reason, the sales rep doesn’t meet the DOL’s requirements for exempt employees who earn a commission.

For the sales rep to be exempt from OT, commissions must account for more than half of what they earn per year (or month, pay period, week — this depends on the terms of their salary). If they don’t earn enough commissions, you’ll have to pay them overtime for those weeks when they worked for more than 40 hours.  

Since this is a traveling sales rep, you’re faced with the question of how to know exactly how many hours they worked. The solution is to implement time tracking for all of your salaried professionals. Doing so will establish a culture of trust and transparency in your company. Your salaried salesperson or any others who are on salary will know that, if they work overtime and are not exempt from OT pay, they’ll get paid for it.