How To Calculate Overtime Pay (With Definition and Examples)

By Indeed Editorial Team

Updated October 11, 2022 | Published February 25, 2020

Updated October 11, 2022

Published February 25, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

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Calculating overtime pay can be an important aspect of ensuring that you're receiving accurate compensation from your employer for the additional time you spend at work. You may benefit from staying up to date with the latest policies and regulations so you can enjoy the benefits of your time and efforts. Understanding the process of calculating overtime pay can give you a better idea of your earnings and how much you may receive for your extra contributions to your employer.

In this article, we define what overtime pay is, describe how it works, review how to calculate overtime pay and provide three examples.

What is overtime pay?

Overtime pay is monetary compensation for the hours an eligible employee works over specified hours within a week. It's usually what professionals earn when they work beyond the typical 40-hour workweek. Although some employees are exempt based on status, the Fair Labor Standards Act (FLSA) continuously updates and outlines regulations, so it's important for professionals to stay up to date with their guidelines. 

FLSA is a federal law that establishes child labor standards, minimum wage and overtime pay for full-time and part-time employees. The act requires employers to compensate qualifying employees at time and a half, or 1.5 of the employee's base wage, for every hour worked over 40 hours per week. This means employees receive compensation for the first 40 hours at their standard rate or base salary and receive at least 50% more earnings per hour for every hour beyond this.

Related: Base Salary and Your Benefits Package

How does overtime pay work?

Overtime pay regulations apply to every non-exempt employee. For a clear outline of determining factors, professionals can consult their certified public accountant (CPA) or the Fair Labor Standards Act. Employers calculate overtime pay based on a weekly or daily basis, depending on an employee's status, and if they've worked over eight hours within a day. Here are the basic steps professionals can use to calculate overtime pay for an employee who works over 40 hours within a week:

  1. Take the professional's regular hourly wage rate and multiply it by 40, or the number of hours they work before they qualify for overtime.

  2. Multiply the professionals' regular hourly pay rate by 1.5 to determining how much compensation they can receive per hour of overtime.

  3. Multiply this by the number of overtime hours the professional works. For example, if they work four hours overtime, you can multiply the value by four.

  4. Add the professional's overtime earnings to their weekly compensation for 40 hours of work to calculate their total earnings, including the overtime percentage.

Related: How Many Hours Equal Full-Time Employment?

Salary Pay vs. Hourly Pay

Examples of calculating overtime pay

Here are three example calculations of overtime pay with different criteria outlined per employee type:

Hourly wage employee

Sandra is an hourly wage employee who worked 50 hours within one typical 40-hour workweek. She typically earns $20 an hour and this week, she worked 10 hours over the typical 40 hours. Her employer follows these steps to calculate her overtime compensation:

  1. Multiply her hourly wage by the number of hours she regularly works to calculate her weekly wage. $20 per hour times 40 hours per week equals $800 of earnings per week on average.

  2. Multiply her hourly wage by 1.5 to determine her hourly rate when working overtime. $20 per hour times 1.5 equals $30 per overtime hour.

  3. Multiply her overtime rate by the number of hours she worked overtime. $30 per overtime hour times 10 overtime hours means she earned $300 of overtime earnings.

  4. Add her average weekly wages to the amount she earned when working overtime to calculate her total earnings for the week. $800 plus $300 equals $1,100.

The employer determines that Sandra has earned $1,100 this week. 

Related: Hourly to Salary Calculator: Convert Your Wages

Salaried employee with a fixed schedule

Some employees who earn a salary may still qualify for overtime pay, but calculating overtime pay for these professionals may require additional steps and attention to detail. Typically, the first step is to determine what the salaried employee earns per hour by dividing hours worked per week by their weekly salary. Here's an example of how to calculate overtime pay for a salaried employee:

Jason has a fixed schedule. He typically earns $400 a week for 40 hours of work. This workweek, he's worked 10 additional hours for a total of 50 hours. Jason's employer calculates his total earnings by following the steps below:

  1. Divide the total amount Jason earns per week to see how much he earns per hour. $400 divided by 40 equals 10, so Jason receives $10 an hour.

  2. Multiply $10 an hour by 50 for a total of $500. This is Jason's earnings according to his $10 an hour regular wage.

  3. Multiply Jason's hourly pay, $10, by 0.5 since the overtime rate is 1.5 of his normal rate. Then multiply the 

    total, 5, by Jason's 10 hours of overtime to determine that his overtime compensation is $50.

  4. Add the overtime compensation, $50, to the hourly compensation Jason earned this week, $500. Jason's compensation for the 50-hour week is $550.

Related: FAQ: What Is a Full-Time Salary vs. a Contract Employee's Salary?

Multiple rates of pay

Some employees fulfill two different roles within a company and qualify for multiple rates of pay, depending on their job description and contracted salary or wages. When an employee performs two different roles with different compensation and qualifies for overtime, the regular rate is the weighted median. For example:

Tania is a professional who works for 50 hours at $10 an hour, then 40 hours for $20 an hour and has worked 10 hours of overtime. Here's how Tania calculates her overtime pay:

  1. She multiplies 10 hours by $10 an hour to account for her first professional rate, which equals $100 and multiplies 40 hours by $20 an hour to calculate the amount she earns at the second rate, which equals $800. She adds the two together to result in $900 of regular wages.

  2. Then, she divides $900 by 50 hours to determine what she earns per hour. Tania receives an average of $18 per hour.

  3. Next, she multiplies $18, her hourly wage, by 0.5, the amount of overtime compensation she earns, and calculates her overtime pay is an extra $9 per hour above her average hourly salary. Then she multiplies $9 by 10 hours, to include the number of overtime hours she worked, and determines her overtime pay is $90.

  4. Finally, she adds $900, her average wages from the two different pay rates, and $90, her calculated overtime pay, to determine her compensation for a 50-hour workweek of $990.

This article is for information purposes only and is not intended to constitute legal advice. Consult with an attorney or lawyer for any legal issues you may be experiencing.

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