Overtime (OT) pay is the hourly wage that employers owe to employees who work more than 40 hours in a workweek. Specifically, if an employee who gets paid by the hour works more than 40 hours in a week, by law their employer must pay them time and a half for the additional hours, or 1.5 times their hourly wage.
The good news is, if you need to pay your employees overtime, that means there’s no lack of demand for your company’s services. What’s more, no matter the size of your business, you can use tools that make it easy to calculate and pay employees for the overtime they accrue.
How to Calculate Overtime Pay
The overtime pay calculation is simple: for a given week, track the amount of time your employee worked. Find out how many hours they worked over 40. Then, multiply their pay rate by 1.5 (time and a half). Finally, multiply this time-and-a-half pay rate by the number of overtime hours they worked. This will give you the amount you owe them for overtime.
The formula for overtime pay looks like this:
- Hourly rate of pay (H) x overtime rate (1.5) = OT.
- If the employee worked 45 hours and their hourly wage is $18
- $18 multiplied by 1.5 equals $27
- Multiply $27 by 5 (the number of overtime hours), which equals $135 - the amount you owe them for overtime
- Multiply $18 by 40, which equals $720 — the amount you owe them for the standard workweek
- Add $720 and $135, which equals $855 — the amount you owe them for all hours worked.
This is the basic math of overtime, but the reality is more complex. With remote work and flexible schedules becoming the new norm, you’ll need to know how to account for varying workweeks.
How Time and a Half Works for Flexible Schedules
When you’re calculating time-and-a-half overtime pay for employees with flexible schedules, the unit of time you want to look at is the seven-day workweek. So, if your business’s pay period is biweekly, break that down into weekly chunks. Hourly employees who work for more than 40 hours over a seven-day timespan must receive overtime.
When it comes down to it, the complexities of today’s work world mean you may have a variety of employees adhering to a variety of schedules. According to a survey from Upwork, 26.7% of employees worked remotely in 2021; by 2025, over 36 million Americans will be working remotely.
Since remote work and flexible schedules are more prevalent now than ever, you’ll need a scheduling solution that allows for a certain amount of flexibility. If there’s not enough work to justify overtime on any given week, use the scheduling software to limit the number of hours an employee can work that week. That way, they can work within their own parameters day to day, but they will not be able to exceed 40 hours in the week.
Flexible schedules work especially well for salaried employees who are focused on task completion instead of working a set number of hours. However, you may need to account for overtime with your salaried employees as well. By law, some salaried employees are exempt from receiving overtime, but others are not. How much the salaried employee makes is the determining factor. Read on to find out more.
Calculating Overtime Pay for Salaried Employees
You don’t normally need to track a salaried employee’s time and sum up their overtime hours because they’re exempt from the overtime-pay law. The Department of Labor’s Fair Labor Standards Act (FLSA) specifies that certain salaried employees are exempt from the overtime pay requirements. To be exempt from overtime, the following employees must make at least $684 per week:
- Executives such as chief executive officer, chief operating officer, chief financial officer;
- Administrative employees such as managers;
- Professional employees such as teachers, lawyers, doctors, engineers;
- Computer employees such as engineers, programmers;
- Outside salespeople;
- Highly paid employees who make at least $107,432 per year.
The DOL set the $684-per-week salary requirement for these employees on January 1, 2020. Before that, salaried employees who were exempt from earning overtime pay had to make at least $455 per week.
It’s not hard to imagine a scenario in which an employer wasn’t able to raise their salaried employee’s pay rate to $684 per week. After all, the pandemic hit businesses hard. If any of your salaried employees still make less than $684 a week, you’ll need to track their overtime hours and compensate them accordingly.
Time and a Half for Salaried Workers
Here’s how to calculate a salaried employee’s overtime pay:
- Divide their weekly salary amount by 40 to calculate the applicable hourly rate;
- Multiply the hourly rate by 1.5 to find the OT rate;
- Multiply the OT rate by the amount of time they worked over 40 hours to find the total amount of OT pay you owe them;
- Add the total amount of OT pay to their weekly salary to calculate the total weekly paycheck.
- If they make $455 per week, $455 divided by 40 equals $11.37.
- Take this hourly rate of $11.37 and multiply it by 1.5, which equals $17.05 - the amount you owe them for OT.
- Multiply $17.05 by the number of overtime hours they worked; if they worked 43 hours, $17.05 multiplied by 3 equals $51.15.
- Add $51.15 to $455 to obtain $506.15 — the total amount you owe them for the 43-hour workweek.
Let’s examine a scenario in which you might need to pay a salaried worker overtime. You have a traveling sales rep who earns commissions for each sale they make, and commission can count as salary. But for whatever reason, the sales rep doesn’t meet the DOL’s requirements for exempt employees who earn a commission.
For the sales rep to be exempt from OT, commissions must account for more than half of what they earn per year (or month, pay period, week — this depends on the terms of their salary). If they don’t earn enough commissions, you’ll have to pay them overtime for those weeks when they worked for more than 40 hours.
Since this is a traveling sales rep, you’re faced with the question of how to know exactly how many hours they worked. The solution is to implement time tracking for all of your salaried professionals. Doing so will establish a culture of trust and transparency in your company. Your salaried salesperson or any others who are on salary will know that, if they work overtime and are not exempt from OT pay, they’ll get paid for it.
Should You Make your Workers work Overtime?
Overtime pay is all well and good, but is it effective for a company to make their workers work overtime in the first place? They may be getting paid suitably, but is overtime efficient from the firm’s point of view?
Let’s take a look at this important question.
There are countless studies that have been conducted in order to show whether or not working overtime is good for productivity. The results, however, are all over the place and it’s hard to say for sure if it helps or hinders a business.
In some cases, workers may feel more pressure to complete tasks and end up making mistakes. In other situations, employees might feel appreciated for their extra effort and work harder as a result.
It really depends on the culture of the company and the individual workers themselves. If a business has a good system in place for handling overtime, then it can be beneficial. However, if not managed properly, it could lead to problems.
There are a few things to consider if you’re thinking of making your employees work overtime:
1. Is there a genuine need for it? If you’re simply trying to save on labour costs, then it’s probably not worth it. Your workers will likely resent being asked to work extra hours for no good reason.
2. How will you compensate them? Overtime pay is required by law in many countries, so make sure you’re familiar with the regulations in your area.
3. What’s the culture like at your company? If your workers are already putting in long hours, then asking them to do more might not be well-received. On the other hand, if they’re used to a relaxed work environment, they might appreciate the opportunity to earn some extra money.
Overall, there’s no easy answer when it comes to overtime pay. It really depends on your specific situation. If you do decide to make your employees work extra hours, just be sure to do it in a way that’s fair and beneficial for both sides.
5 Alternatives to Overtime Working
If you’ve decided that working overtime isn’t right for your company, there are plenty of other ways to increase productivity without putting extra pressure on your employees. Here are a few ideas:
1. Hire more staff
This might seem like an obvious solution, but it’s often overlooked. If you’re constantly struggling to get everything done, it might be time to consider adding a few more bodies to the team.
Hiring staff can be an expensive task to do, but it can priceless in terms of efficiency.
2. Cross-train employees
If you have workers who are only responsible for one task, consider cross-training them so they can help out in other areas as well.
This will make your team more versatile and better able to handle unexpected situations. For example, if one employee is out sick, another can step in and pick up the slack.
3. Encourage breaks
It might seem counterintuitive, but employees who take regular breaks are actually more productive than those who don’t.
Encourage your team to step away from their workstations for a few minutes every couple of hours to stretch their legs and clear their heads. They’ll come back feeling refreshed and ready to tackle whatever tasks lie ahead.
4. Implement flexible hours
If your employees are finding it difficult to balance their work and personal lives, consider implementing flexible hours.
This way, they can start and finish their workday at a time that works best for them. Just be sure to set clear guidelines so everyone is on the same page.
5. Allow remote work
If your company doesn’t already allow remote work, now might be the time to start considering it. With today’s technology, there’s no reason why employees can’t work from home or another location outside of the office.
This can be a great way to increase productivity and morale while also giving employees the flexibility they need.
Is Overtime Working Ethical?
Overtime has been a controversial topic for years, with many people debating whether or not it’s ethical to require employees to work more than 40 hours per week.
Some argue that it’s unfair to ask people to put in extra hours — even with compensation. After all, they already have a full-time job and are likely juggling other responsibilities outside of work.
Others believe that overtime is necessary in order to get the job done right. They argue that if an employer is willing to pay for the extra hours, then there’s no reason why employees shouldn’t be required to work them.
So, what’s the answer? Unfortunately, there isn’t a clear-cut answer that will work for every situation. It really depends on the company, the employees, and the specific circumstances.
However, it is important to have a discussion about overtime and its implications before requiring employees to work extra hours. This way, everyone is on the same page and knows what to expect.
Here are 3 important talking points about the ethics of overtime working:
1. Is it fair to the employees?
As mentioned before, many people argue that requiring employees to work overtime is unfair. They already have a lot on their plate, and adding more work hours can be detrimental to their health and wellbeing.
If you’re considering implementing an overtime policy, make sure you weigh the pros and cons carefully. Would your employees be able to handle the extra workload? Are they likely to burn out quickly? Would they be compensated fairly for their extra hours?
2. Is it necessary for the job to get done?
In some cases, overtime may be absolutely necessary in order to complete a project or meet a deadline. If this is the case, make sure you communicate this to your employees ahead of time so they know what to expect.
It’s also important to have a plan in place for how the overtime hours will be used. For example, will everyone be required to work additional hours, or will only certain team members be needed?
3. What are the implications of overtime work?
There are a few things to consider when it comes to the implications of overtime work.
For example, will employees be paid fairly for their extra hours? Will they be given adequate time off to rest and recover? What are the company’s liability risks if someone gets injured while working overtime?
These are all important factors to keep in mind before implementing an overtime policy.
Overtime can be a delicate topic, but it’s important to have a discussion about it before making any decisions. These 3 talking points will help you get the conversation started and ensure that everyone is on the same page.
Where is Overtime Most Effective?
Overtime is often thought of as a evil necessity in the workplace. It can be used to complete tasks that otherwise couldn’t be done in the normal work day, or to make up for lost productivity. But is it really all that bad?
In some cases, yes. If overtime is used regularly in a company, it can lead to burnout among employees and decreased morale. However, there are also companies in which overtime is actually quite effective.
So, in which companies is overtime most effective?
Overtime is most effective in companies that have a clear and concise plan for how it will be used. For example, if a company knows that it will need extra help on certain days or during certain months, it can schedule overtime accordingly.
This allows employees to plan their work/life balance ahead of time and prevents last-minute scrambling.
Overtime is also most effective when it is used sparingly. If employees are constantly working overtime, they will quickly become burned out.
However, if overtime is used only occasionally, it can be a great way to get extra work done without putting too much strain on employees.
In general, overtime is most effective in companies that have a clear plan for how and when it will be used.
By being thoughtful about when and why overtime is used, companies can ensure that it is an effective tool rather than a source of stress for employees.
Is There a Future For Overtime Working?
Overtime has been a staple of the American workforce for generations, but is it sustainable in the long run?
There are arguments to be made on both sides of the issue. On one hand, overtime gives employees the opportunity to make extra money and can be seen as a perk by some.
On the other hand, working excessive hours can lead to burnout and decreased productivity.
So, what’s the future of overtime? Only time will tell. However, with more and more companies implementing policies that discourage or prohibit overtime, it’s possible that the days of working long hours for extra pay are numbered.