How to Calculate Overtime Hours

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how to calculate overtime hours

Calculating overtime pay can be time-consuming and complex, especially in shift-based industries such as manufacturing and healthcare. 

But with labor costs increasing year on year and mounting challenges for HR teams, it’s worth auditing your finances and finding out just how much you’re spending on employees’ overtime. 

Spending money on labor is a non-negotiable, but by understanding how to calculate overtime hours and reducing them if necessary, you can keep on top of labor costs without short-changing your employees.

 Before we show you how to calculate overtime for monthly salary employees and hourly paid staff members to streamline your payroll, let’s start with the basics:

What is overtime?

Overtime refers to hours worked by an employee outside of their usual scheduled hours. Because employees are agreeing to work for longer than expected, overtime is paid at a higher rate than regular hours. 

How does overtime work?

Overtime is generally restricted to hourly-paid workers, so it’s common in healthcare, hospitality, and manufacturing industries, where employees work shifts. 

In the US, the federal minimum overtime rate for hourly employees is one and a half times the regular hourly rate for work. For example, if an hourly employee is paid $12 per hour and works for 50 hours per week, they’ll receive $12 for the first 40 hours and $18 for the 10 overtime hours.  

While you must pay overtime at the minimum federal rate, you can choose to pay overtime at a higher rate or pay it at fewer hours per week, for example, when an employee works more than 35 hours instead of 40. 

In Canada, overtime rates differ from province to province. Typically though, anything an employee works over 44 hours per week is paid as overtime, at a rate of time and a half. 

Some companies choose to pay time and a half or double time (twice the hourly pay) for work on the holidays or night shifts.

Paying extra discretionary overtime is a simple way of rewarding employees who go above and beyond. 

But do you get overtime on salary?

The answer’s a little more complex. 

In the US, salaried employees and employees working in executive, administrative, professional, outside sales, and computer roles are exempt from overtime pay if their weekly income is over $684 per week. 

Employees paid less than $684 a week must be paid overtime at the same rate as hourly workers if they work more than 40 hours per week. 

For exempt salaried employees, employers are free to include non-discretionary bonuses and incentives such as a commission for up to 10% of the salary threshold.

In Canada, certain classifications of workers are exempt from overtime pay, such as some staff in managerial, administrative, executive, and sales roles.  

How to calculate overtime pay for hourly employees

So, how do you calculate overtime pay? Let’s dive in and find out:

1. First, establish how many hours an employee needs to work before its considered overtime.

If we assume it’s 40 hours (as it is in the US), you’ll need to establish how many hours they’ve worked above the threshold.

 For this example, let’s assume they’ve worked an extra 5 hours. If their hourly wage is $10, their first 40 hours will be paid at this rate.

2. Multiply the regular hourly rate by the non-overtime hours worked per week. 40 x $10 = $400.

3. Their overtime hours (5 hours), will be paid 1.5 times, from there you’ll need to multiply the overtime hourly rate by the overtime hours paid.  $10 x 1.5 = $15. 

4. Multiply the overtime hours by the overtime rate. In this case, 5 hours x $15 = $75. 

This would make the employee’s pay for the entire week $75 + $400 = $475. 

How to calculate overtime pay for salaried employees

In most parts of Canada, non-exempt salaried employees can receive overtime after they meet the 44-hour threshold.

 Here’s how to calculate overtime for salaried employees in Canada:

1. Determine the employee’s hourly rate based on how many hours they work per week and their weekly salary. If they work for 44 hours per week, for example, and they earn $550, their hourly rate is $12.50, because 550/44 = 12.50.

2. Multiply the overtime hours by the overtime hourly rate. If the employee worked an extra 5 hours, these hours will be paid at the 1.5 rate. $12.50 x 1.5 = $18.75. 

3. Multiply the overtime hours by the overtime rate, so in this case, 5 x $18.75 is $93.75.

4. Add the overtime hours to the regular hours to calculate the employee’s pay for that week. For example, $550 = $93.75 = $643.70.

5. Make sure to add the overtime hours on your payroll system at the end of the month so the employee receives accurate remuneration. 

In the US, you can use the same calculation to work out the overtime pay for workers with weekly salaries lower than $684. Divide $684 by their weekly hours to establish their hourly rate, then follow the same steps as above. 

How to calculate double time and a half

If you decide to pay workers double time and a half during holidays or other special occasions, here’s how:

1. If the worker is salaried, establish their hourly rate by dividing their weekly salary by the number of hours they work. Let’s imagine they work 44 hours per week for $440 – this would make their hourly rate $10. If they’re hourly paid, you’ll already know their hourly rate.

2. Multiply their hourly rate by 2.5 to get the double time and a half rate. $10 x 2.5 = $25, so that would be their overtime rate. 

3. If the worker’s based in Canada, they’d go on the overtime rate as soon as they hit more than 44 hours. If they worked 46 hours, making it 2 hours overtime, we’d need to multiply the overtime rate by the overtime hours to find the overtime hourly rate. In this case, 2 x $25 = $50.

4. Add the regular weekly rate to the overtime hours for their overall weekly salary. In this example, $440 + $50 = $490, so that would be their pay for that week. 

What is overtime premium pay?

Overtime premium refers to the additional amount paid to an employee when they work outside of their dedicated hours.

For example, if a worker is paid 1.5 times their normal hourly rate when they work more than 40 hours a week, the pay for the 0.5 hours is the premium.

If you earn $10 per hour, for example, the premium pay would be $5 since it’s 50% of the usual hourly rate. 

With Voilà!, it’s easier than ever to pay your employees a premium when they work beyond their typical hours.

You can add a variety of premiums that work for your business.

Whether you pay time and a half, double time, or another unique rate, you can update your staff’s timesheet at the click of a button. 

Tracking employees’ hours and attendance digitally comes with a myriad of benefits, but one of the most obvious is it reduces the margin of error. 

If you’re still using old-school physical clock-in cards to log hours, you’re at risk of losing hundreds, or even thousands, of dollars a year through inaccurate hours paid. 

Plus, moving your timesheets digitally can free up your time to get on with other important aspects of managing an HR department. 

FAQs

1. How is time and a half calculated?

Time and a half is calculated by calculating a worker’s typical hourly rate by 1.5.

If an employee earned $10 per hour, for example, time and a half would be $15 per hour. 

2. Are salaried employees entitled to overtime?

In Canada, laws differ from province to province, but non-exempt salaried employees can receive overtime. In the US, only salaried employees who earn less than $684 per week are eligible for overtime. 

3. Can an employer adjust your hours to avoid overtime?

Yes, an employer can modify your work week to avoid paying overtime, but it has to be a permanent change, not just a one-off adjustment on a particularly busy week.

They’re also required to provide notice to employees about the updates to the working week. 

4. What is coefficient overtime, and how is it calculated?

When salaried employees work more than their usual hours, employers can pay them coefficient overtime. 

To calculate coefficient overtime, work out an employee’s weekly wage and divide it by the hours worked.

If they have an effective weekly wage of $500 and work 45 hours, their hourly base rate for overtime is $500 divided by $ 45, which is $11.11.

Half of the hourly rate (the overtime premium) would be $5.55.

If the person worked 55 hours in one week, the effective hourly rate and overtime premium would reduce.

 In the end, the more hours the employee works, the lower the effective hourly rate.  

The Bottom Line 

As with other manual timekeeping elements that come as part of any HR role, calculating overtime is tricky business. 

To free up your time spent manually adjusting payroll, opt for a time and attendance monitoring app that you can also use to pay overtime premiums to your hardworking staff.

To see how Voilà! can streamline your HR operations, book a demo today.