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How overtime is calculated for hourly employees

Overtime trips up a lot of owner-run businesses, usually because of how the workweek is set or what counts toward the regular rate. Here’s how the federal rule works and where states add to it.

The federal overtime rule

Under the Fair Labor Standards Act (FLSA), non-exempt employees must get at least one and a half times their regular rate of pay for every hour over 40 in a workweek. That’s what people mean by “time and a half.”

What counts as a workweek

  • A workweek is a fixed, regularly recurring period of 168 hours: seven consecutive 24-hour days.
  • It can start on any day and at any hour you choose, but it has to stay the same.
  • Each workweek stands on its own. You can’t average two weeks together, so 30 hours one week and 50 the next still means 10 overtime hours in the second week, even on a two-week pay period.

How to calculate overtime pay

Start with the regular rate. For someone paid one hourly rate, the regular rate is that hourly rate. Then:

  1. Add up the hours worked in the workweek.
  2. Subtract 40 to get the overtime hours.
  3. Pay all hours at the regular rate, plus an extra half of the regular rate for each overtime hour.

Example: an employee with one hourly rate works 46 hours in a workweek. They’re owed 40 hours at the regular rate plus 6 hours at time and a half.

What goes into the regular rate

The regular rate isn’t always just the hourly wage. It generally includes non-discretionary pay such as attendance, production or shift bonuses. It usually leaves out things like discretionary bonuses, gifts and expense reimbursements. When someone works two jobs at different rates in the same week, the regular rate is usually a weighted average of the two.

State overtime rules

States can require more than federal law, and the stricter rule applies. California, Alaska, Colorado and Nevada have daily overtime rules in some situations, so a long day can mean overtime even in a short week. California also requires double time in some cases, such as more than 12 hours in a day.

Common overtime mistakes

  • Not paying unapproved overtime. If you knew about the work or allowed it, you owe the overtime. You can enforce an overtime policy, but you still have to pay for the hours.
  • Offering comp time instead. Private employers generally can’t swap overtime pay for future time off.
  • Assuming salary means exempt. Exemption depends on salary level, how the salary is paid and the job’s actual duties, not just the job title.
  • Missing hours. Missed punches, off-the-clock work and uncounted travel between job sites hide overtime. Fix them before payroll; our guide to fixing missed punches walks through it.

How PunchOutPayroll helps

PunchOutPayroll tracks every person’s week with overtime and breaks, so you see overtime building before the week closes. Approved hours go out in a payroll-ready file, and you run payroll. See payroll for owner-run businesses or the construction time clock for crews that pile up long days.

Sources and further reading

General information, not legal advice. Labor rules change and vary by state and city. Check your state labor department or talk with an employment attorney about your situation.

Frequently asked questions

How is overtime calculated for hourly employees?

Under federal law, non-exempt employees get at least one and a half times their regular rate for each hour over 40 in a workweek. Some states also have daily overtime.

Can I average hours over a two-week pay period?

No. Under federal law each workweek stands on its own, so overtime is figured week by week even if you pay every two weeks.

Do I have to pay overtime I didn’t approve?

Yes, if you knew about the work or allowed it. You can discipline employees for breaking an overtime policy, but the hours still have to be paid.

Is a salaried employee always exempt from overtime?

No. Exemption depends on salary level, salary basis and the job’s actual duties.

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