Pay & Salary

What Is Overtime Pay? (Plus How It Works)

November 8, 2021

When you work beyond the standard 40-hour workweek, you may be eligible for overtime pay. Understanding overtime pay can help you determine your eligibility and how much you can expect to earn when you put in overtime hours at work. In this article, we define overtime pay and explain how it works, including eligibility rules, types of overtime and how to calculate it.

What is overtime pay?

Overtime pay refers to the compensation you receive for working beyond normal working hours. For example, if you’re eligible to receive overtime pay and your standard workweek is 40 hours, working 50 hours in a given week means you'll earn overtime pay for those 10 extra hours. Your overtime eligibility will depend on your weekly earnings and how many hours you work.

Read more: Guide To Overtime Pay

How does overtime work?

How overtime pay works depends on whether or not you’re exempt from your employer, your eligibility based on number of hours worked and weekly pay, plus how your employer calculates overtime pay.

Employee classifications for overtime pay

Employees fall under one of two classifications—non-exempt and exempt—with their main difference being overtime eligibility. Exempt employees in the United States are "exempt" from receiving overtime from their employer, meaning they're not normally entitled to overtime pay per the Fair Labor Standards Act (FLSA). Exempt employees often have professional, executive and administrative positions, but some types of exempt employees who are generally paid less may still qualify for overtime.

While exempt employees typically don't receive overtime, non-exempt ones do. Examples of non-exempt employees include hourly workers such as servers, contractors and retail associates.

Along with following FLSA rules, overtime pay eligibility may be subject to state regulations. In states where employees are subject to both state and federal overtime laws, you’ll receive overtime pay according to whichever offers the higher amount.

Read more: ​​Exempt and Non-Exempt Employees: Understanding the Difference

Eligibility rules for overtime pay

Overtime eligibility depends on your weekly earnings and the number of hours you work. According to the Department of Labor (DOL), as of Jan. 1, 2020, employees who earn less than $684 per week or $35,568 per year have federal overtime protection even if they’re considered exempt. Additionally, employees who fall under FLSA overtime pay rules must receive, at minimum, overtime pay of time and a half their regular pay rate for hours worked that exceed the standard 40-hour workweek. For example, if you typically earn $20 per hour, your overtime pay amounts to $30 (1.5 x $20).

Some employers also offer overtime at a rate higher than time and a half. As of May 20, 2020, they also may give incentives or bonuses to salaried, non-exempt employees whose hours vary per week, per the DOL.

Related: What Is Time and a Half? Definition and How To Calculate It

Types of overtime pay

When it comes to overtime, there are various types you can earn. Consider the following types of overtime pay:

  • Double-time pay: This refers to pay that's double the amount you usually receive for the regular hours you worked. For example, if you typically get paid $10 per hour, double-time pay earns you $20 for each overtime hour worked. You may receive double-time pay if you work on a federal holiday or for working overtime. Unlike regular overtime, the FLSA doesn't have a requirement for double-time pay.

  • Time off in lieu (TOIL): Rather than paying employees for overtime, some employers give their employees additional time off. You and your employer negotiate the specific details of this arrangement, such as how much time you can take off and when.

  • Voluntary overtime: This refers to overtime your employer offers that you're free to accept or decline without penalty.

  • Non-guaranteed overtime: This is overtime your employer doesn't have to offer, but if they do, you may be forced to work these hours per terms in your employee contract.

  • Compulsory overtime: This is mandatory overtime, with provisions included in the terms and conditions of your contract. Your employer still needs to follow certain rules and regulations to remain compliant.

Related: How To Deal With Unreasonable Demands at Work (With Steps)

How do you calculate overtime pay?

Follow these steps as you calculate overtime pay:

1. Consider if you’re exempt

Determine whether you classify as a non-exempt or an exempt employee based on FLSA criteria, including any exceptions to these regulations for some industries and jobs. If you aren’t protected by FLSA, you may be able to make arrangements with your employer to earn extra pay.

2. Determine your weekly hours

Keep track of your hours each week, especially if you tend to work irregular or split shifts. If you use a timesheet to report your hours to your employer, it's easier to monitor your hours compared to weekly pay.

Related: Employee Schedule Templates and Examples (Free Download)

3. Calculate your hourly pay rate

If you're an hourly employee, you should already know your hourly pay rate. If you're salaried, start by calculating your weekly pay. To do this, divide your salary by 52 for the number of weeks in a year.

Example:

If you earn a salary of $50,000 per year, divide this figure by 52 to arrive at a weekly pay amount of about $962 before taxes. If working the standard 40 hours per week, you’ll divide your weekly pay amount by 40 to determine your hourly rate ($962 / 40) to arrive at $24. If you work over 40 hours and are eligible, you're entitled to overtime.

Related: Salary to Hourly Conversion Calculator

4. Learn your employer's overtime pay rate

While most employers offer an overtime rate of time and a half, others offer double time or other pay. Your employer may have to follow certain additional state laws that determine how much overtime you're entitled to.

If you don't know your employer's overtime pay rate, refer to your contract or your employee handbook, which typically includes this information. You can also check your state's guidelines to verify they follow the legal minimum.

5. Do your overtime pay math

After reviewing the number of overtime hours you worked in a given week and your company's overtime pay rate, you can calculate your overtime pay for a given period. To determine your total overtime wages, multiply the number of overtime hours by the overtime rate.

Example: If you have a normal pay rate of $10 per hour and your company offers an overtime rate of time and a half, you’ll get $15 for every overtime hour worked. If you worked 50 hours in one week as opposed to your usual 40 hours, you worked 10 overtime hours (10 x $15), earning $150 in overtime pay. Add to your normal wages (40 x $10) to determine your total wages for the week ($400 + $150), which is $550.

Read more: How Is Overtime Calculated?

How does overtime work if you’re paid biweekly?

When you're paid biweekly, you’ll need to look at each consecutive 7-day period in a 40-hour workweek to calculate your overtime pay. If you’re paid biweekly and work 45 hours one week and 35 hours the next, even though you worked a total of 80 hours over a span of two weeks, you’re eligible for five hours of overtime for the first week in the pay period.

Example:

Let's say you earn $20 per hour and get time and a half for overtime pay, or a rate of $30. If you worked 45 hours the first week of the pay period, you'd get overtime wages of $150 ($30 x 5) in addition to your $800 ($20 x 40) in regular wages. This means you earned a total of $950 during the first week.

During the second week, you only worked 35 hours ($20 x 35), earning $700 in regular wages. For the full two-week pay period ($950 + $700), you earned $1,650.

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