How do Employers Calculate Overtime? Are you doing it right? |

Employers often do not calculate their employee’s hourly rate appropriately because they do not include many of the following items:

cost of meals, lodging, and other facilities provided to the employees, nondiscretionary bonuses, on-call pay, and shift differentials.

Below does not include sales commission or tip pay compensation structures.

Here is a Practical Overtime Calculation to include additional compensation that MUST be included:

An employee with an hourly rate of $12 per hour works 45 hours in a week and also receives a $50 bonus and $50 in lodging. The employer must combine all the sources of compensation:

(45 hours x $12) + ($50 bonus) + ($50 lodging) = $640

This total divided by hours worked will provide the employee’s true hourly rate for the week, $14.22, and time and a half must be calculated from this number ($14.22 x 1.5 = $21.33).

So this employee’s total pay for the week would be (40 hours x $12) + (5 hours x $21.33) + ($50 bonus) + ($50 lodging) = $686.67.

Conversions to Hourly Rate:

Salaried with fixed 40-hour week.
- The overtime rate is 11/2 times the rate per hour (weekly salary divided by 40) for all hours over 40 hours per week.
Salaried with fixed week of fewer than 40 hours.
- The overtime rate is 11/2 times the rate per hour (weekly salary divided by number of hours that the salary is intended to compensate) for all hours over 40 hours per week.
Salaried with irregular week.
- Employees who are paid a salary and whose hours vary from week to week receive an overtime premium calculated as follows: For each hour worked over 40, add one-half the rate per hour for that week. The rate per hour is the weekly salary divided by the actual number of hours worked in the workweek.
Semimonthly salaries.
- The salary is multiplied by 24 and divided by 52 to obtain a weekly rate.
Monthly salaries.
- The salary is multiplied by 12 and divided by 52 to obtain a weekly rate.
Job or day rate.
- If the employee is paid a flat sum for a day’s work or for doing a particular job without regard to the number of hours worked, and if s/he receives no other form of compensation for services, his or her regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. The employee is then entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.
Piecework.
- When an employee is employed on a piece-rate basis, his or her regular hourly rate of pay is computed by adding together his or her total earnings for the workweek and dividing by the number of hours worked in the week. For overtime work, the pieceworker is entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.