Overtime

What is Overtime?

Overtime refers to additional pay for hours worked beyond the standard 40-hour workweek (i.e., seven consecutive 24-hour periods). As of a September 2019 final ruling by the U.S. Department of Labor, nonexempt employees who earn less than 35,568 dollars annually must receive overtime pay. 

Some states require overtime to be paid if employees work over 8 hours in a single 24-hour period, as opposed to counting total hours worked in a workweek. No matter the differences in how overtime pay is calculated, the rate of required overtime pay is consistent: it should be at least time and a half or an additional 50 percent of the employee’s regular daily or hourly pay rate. All overtime pay accrued during a given workweek is paid on the employee’s regular payday for their regular pay period.

Who Is Exempt and Nonexempt from Overtime Pay?

The Fair Labor Standards Act (FLSA) requires that most U.S. employees receive overtime pay—referred to as nonexempt employees—but certain types of employees are exempt. Employees do not qualify for overtime pay under the following conditions:

• Their roles include certain job duties as defined by the FLSA.

• They’re paid on a salary basis at the “standard salary level,” which is currently 684 dollars per week (35,568 dollars annually). 

• Highly compensated employees (HCEs) making at least 107,432 dollars per year (35,568 dollars of which must be paid on a salary basis) are also exempt.

• They are categorized as:

• • Independent contractors

  • Volunteers (unless you’re a non-profit organization)

  • Outside salespeople

  • Seasonal employees

What Is Considered Overtime?

Any time worked over 40 hours in a workweek is considered overtime, with these additional stipulations: 

• The workweek must be seven consecutive 24-hour periods.

• The workweek does not need to coincide with a specific calendar week. 

• The workweek may begin on any day.

• The 24-hour periods may begin at any hour.

• Averaging the hours worked over more than one week is not permitted.

What Is Not Considered Overtime?

Overtime pay is not required for regular work hours performed on:

• Weekends (Saturdays and Sundays)

• Holidays

• Other regular days of rest (such as for religious purposes)

The only time overtime pay is given on these days is when it pushes an employee’s hours past 40 hours in that workweek. Some employers choose to pay a higher overtime rate when employees work extra hours on these particular days, but it’s not required by law.

How Does Overtime Work?

To stay compliant with FLSA overtime requirements as an employer, you must:

• Determine whether federal overtime provisions apply to your company. Generally, this means:

• • You have over 500,000 dollars in annual sales.

  • You work in “interstate commerce,” meaning business is conducted across state lines, including phone calls, sending mail, or handling goods.

• Determine which of your employees are entitled to overtime pay, which includes:

• • All nonexempt (non-salaried) employees 

  • Salaried employees earning less than 684 dollars per week or $35,568 per year

• Calculate the time-and-a-half pay due to employees for overtime work (see “How Do I Calculate Overtime” below).

• Include overtime pay on the employee’s regular payday as part of their regularly distributed payroll. 

• Keep records of all overtime payments paid to employees to prove compliance with all FLSA requirements.

How Do I Calculate Overtime?

There are two ways to calculate overtime pay. One is used for hourly employees and the other is used for salaried employees.

How to Calculate Overtime for Hourly Employees

To calculate overtime for hourly employees:

1. Multiply the employee’s regular hourly pay rate by 1.5 (the time-and-a-half rate).

2. Multiply that total by the extra hours worked (over 40 hours). This will equal the amount of overtime pay the employee earned.

3. Add the overtime total pay rate to the employee’s regular 40-hour workweek pay for their new total pay.

Example:

Ernie normally earns 15 dollars an hour for a 40-hour workweek, totalling a 600 dollar paycheck. Last week, Ernie worked an additional 5 hours, ending the workweek with a total of 45 hours. 

• $15.00 an hour x 1.5 = $22.50 an hour of overtime pay

• $22.50 x 5 hours of overtime = $112.50 of total overtime pay

• $600 regular pay + $112.50 overtime pay =  $712.50 total pay

How to Calculate Overtime for Salaried Employees

There are two options for calculating overtime pay for salaried employees. 

Option 1: Calculate the salaried employee’s hourly rate by dividing their yearly salary by 2,080 hours of work per year (based on fifty 40-hour workweeks and two 40-hour vacation weeks). Once you have the hourly rate, use the same calculation as for non-salaried employees (see above).

Option 2: Calculate the salaried employee’s hourly rate by dividing their weekly salary by the number of normal hours worked per week. This will give you their hourly rate, which you can then use in the same overtime calculation as for non-salaried employees (see above).   

How Much Is Overtime Pay?

The federal government requires employers to pay their nonexempt employees (which includes salaried employees earning less than 35,568 dollars per year) an overtime rate of 1.5 times their regular hourly rate. 

However, some employers choose to use a higher rate (e.g., twice the regular hourly rate) or choose to start calculating overtime rates after 36 hours of work rather than after 40 hours per workweek.

Is Overtime Time and a Half?

Yes, time and a half (1.5 times the nonexempt employee’s regular hourly rate) is the minimum overtime pay rate required by the FLSA.

Is Mandatory Overtime Legal?

Yes, mandatory overtime is legal by federal law under the following conditions:

• The employee is paid at least 1.5 times their regular hourly rate for the overtime hours worked.

• The overtime doesn’t create a “safety risk” for employees.

• The employer is abiding by their state-specific overtime laws.