How to Calculate Overtime Manually

20 of September, 2022

Whenever an employee works more hours in a week, it’s safe to say that they are eligible for overtime pay. While this is a factor in many employment statuses; unfortunately not all employment statuses are eligible for overtime compensation under the Fair Labor Standards Act (FLSA). But first, what is overtime pay, and how do organizations calculate it? 

What is overtime pay?

Overtime pay is a form of monetary compensation granted to individuals who do beyond 40 hours of work in a week. It is a bonus granted to individuals that work beyond their regular hours and is backed by the law. Unfortunately, not everyone is eligible for this and is only available to those who have attained a certain level of employment status as stated earlier.

The structure of an organization’s overtime pay for exempt and non-exempt workers is usually different. Depending on the nature or location of the employment, to comply with federal and provincial policies.

How does overtime pay work?

Overtime pay is done when the employee exceeds their normal working hours of the week. For workers that are paid on an hourly rate, their typical overtime pay is usually about one and a half times the usual pay rate.

However, this is different for exempt and non-exempt workers. Non-exempt workers are those that are eligible for overtime pay and are usually paid at an hourly rate. Non-exempt part-time workers are also eligible for overtime pay which is usually calculated per day rather than weekly.

Exempt workers, on the other hand, are those who are not eligible for overtime pay and are often not paid on a weekly basis. This is because the nature of their job does not meet the criteria to be eligible for overtime pay. 

In many cases, they are placed on salary payments rather than wages. Some of these exempt job positions include managerial, executive, and administrative positions, as well as some outside sales positions.

How to calculate overtime pay

Overtime pay usually occurs when an employee works past the 40-hour overtime threshold. However, some employers may decide to grant overtime permission over longer periods depending on the averaging agreement. These agreements can be dependent on the type of the job, the industry, or the agreement between the employer and the employee. However, the typical overtime pay stated by the law can be calculated by multiplying your normal pay by one and a half (1.5) times.

Multiply the result with the number of overtime hours you might have worked and then add the final answer to your normal pay rate. This will give you your overtime pay rate. For instance, if Jack earns $10 per hour on his regular job and he worked 50 hours this week, he would be entitled to his normal pay for 40 hours which would be $400. However, because he worked an extra 10 hours, his overtime pay would be calculated by multiplying 10 by one and a half times (1.5) the extra working hours. 1.5 times 10 hours is 15. You’ll then take this result and multiply it by the overtime working hours of 10, which would give you $150. Now you can add this $150 to $400 and you’ll get $550, which is Jack’s overtime pay.

That’s how to calculate overtime pay; however, these are the federal guidelines. Some states may have their own rules governing how overtime pay should be calculated. 

How to automate overtime calculations

Large organizations dealing with numerous workers wouldn’t have the time to calculate the overtime periods spent by their workers. Hence they can always rely on digital tools to take care of this. 

Sesame HR is a human resources software that can simplify this process. Our overtime management software helps organizations record their employees’ overtime in real-time. But that’s not all. The best thing is that you can automatically choose how best to compensate your employees.