Do you know what is overtime and how to calculate it? Let’s see in this article how you can calculate overtime pay easily with a simple formula.
Overtime pay is a right of every non-exempt employee that works for more than 40 hours per week, under the Federal law, the Fair Labor Standards Act (FLSA). However, some American states have their own methods to calculate overtime pay for non-exempt employees as well as exempt ones.
So, How to calculate overtime pay that you would get as overtime? In this article, I will respond to various laws that govern overtime payments and how to calculate overtime from your working days.
Exempt vs Non Exempt Employees Definition
Employees that’re on regular employment, on the hourly payroll of a company and receive wages that’re more than minimum wage stipulated by the FLSA and Department of Labor are known as non-exempt employees. Such employees are entitled to
Exempt employees are those that don’t qualify for minimum wage or overtime wages guaranteed by the FLSA. Instead, exempt employees are paid a salary and not hourly wages because their work is of a professional nature.
Minimum Wage to Qualify for Overtime
From January 1, 2020, the Department of Labor has made some changes to the overtime rules. Before that date, employees earning less than $455 for working 40 hours a week were entitled to overtime. Now, the Department of Labor has raised it to minimum $684 a week.
“Employees paid less than $684 a week must have their hours tracked and must be paid if they work over 40 hours in a week. This change applies to all types of exempt employees: executive, administrative, professional, outside sales, and computer employees,” the amended overtime law says.
The earlier requirement was that a salaried employee paid more $455 a week ($23,660 a year) or more was not subject to overtime. The increase means that an exempt employee who is paid $684 a week (the equivalent of $35,568 a year) or more would not be subject to overtime.
“In addition, the total annual compensation level for “highly compensated employees (HCEs)” has been increased from the current level of $100,000 to $107,432 a year.
To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis without regard to the payment of non-discretionary bonuses and incentive payments,” the law further adds.
This brings millions of more persons, including skilled workers, professionals and executives under the ambit of the overtime laws.
How to Calculate Overtime Pay from Working Days?
This brings us to the million Dollar question: how to calculate overtime rate or pay from working days? Actually, the formula is very simple for calculating overtime.
The FLSA considers that an employee will work five days a week, with each working day consisting of eight hours each. This means, the employee puts in a maximum of 40 hours on working days.
Now let’s consider that during the week, an employee works for 10 hours extra per week. This means, they’ve worked for a total of 50 hours. Therefore, the overtime per working day will be calculated on basis of one-and-half times the regular pay, for the 10 extra hours.
Let’s consider the normal wage is $20 per hour during the normal eight hour working day. This translates as $15 per hour as overtime wage. So, if any employee works for more than eight hours, they get the regular pay at the standard rate, plus one-and-half times the hourly wage as overtime.
Therefore, the total pay will be calculated like this:
$20 x 40 Hours = $800.
$30 x 10 Hours = $300.
Therefore, the employee is entitled to receive $1,100 including all wages and overtime for the extra 10 hours of work.
The formula is very simple and you can easily calculate paycheck with overtime with this. All you need to do is find your hourly wage for the normal eight-hour-per-day and 40 hours/ week basis. And calculate the hourly wages by 1.5 times. This means, you get a 50 percent extra wage for working overtime, in addition to your hourly wage.
Some employers pay double the amount as overtime if you work on weekends and public holidays. For example, if you’re making $10 per hour for eight hours on any working day, you would get $20 per hour for working on a holiday or weekend.
Tips Credit as Overtime Payment
The FLSA also allows employers to pay employees that receive tips to pay overtime, provided their average hourly pay is less than the Federal Minimum Pay. Currently, the Federal Minimum Pay is $7.25 per hour.
The FLSA allows employers to pay such employees a direct cash wage as low as $2.13 per hour. However, for this, the direct cash wages plus tips should sum up to the Minimum Federal Pay.
Perks and Bonuses for Overtime
Larger corporations also include perks and bonuses for overtime work. These are independent of overtime payments. It’s up to an organization whether to calculate overtime directly or offer it as a bonus to the employee. In such cases though, the bonus should exceed the amount payable as overtime.
The same holds true for perks. An employee can get extra money as compensation instead of perks for working overtime. However, the employer also has the right to pay extra perks instead of overtime. In such cases, these perks should be equal or more than the amount that the employee would otherwise get as direct overtime payments.
Taxation and Overtime Payments
Its worth remembering that all overtime payments, bonuses and perks also qualify for Income Tax returns. That’s because the Internal Revenue Service doesn’t distinguish between your regular pay and overtime pay. Instead, it takes into consideration the total sum of money you earn during a calendar year.
Therefore, make sure you also calculate your overtime payments while filing for Income Tax returns. They aren’t exempt from taxes. And concealing these overtime payments, whether made by cash or bank transfers, is tantamount to tax evasion and can attract stiff penalties.
As we can see, it’s very simple to calculate overtime from your working days. If you’re in doubt, it’s best to ask the Human Resources department or Admin and Finance departments about how much overtime you’re actually getting for your extra work on a workday.