How to Calculate Overtime Pay for Salary Employees

Even if you pay an employee a salary, you might owe them overtime wages. Learn how to calculate overtime pay for salaried employees correctly. And, check out step-by-step examples. 

When are salaried employees eligible for overtime pay?

There are two types of employees: exempt and nonexempt. These classifications refer to whether an employee is exempt from overtime wages or not. You must pay overtime wages to nonexempt employees. You do not get to choose an employee’s classification. Also, paying an employee a salary does not automatically make them exempt from overtime wages.

The Fair Labor Standards Act (FLSA) sets the rules for overtime classifications. To be considered exempt from overtime pay, an employee must meet all the criteria for an exempt employee. If your employee does not meet all the criteria to be exempt, you must pay them for extra hours worked even if you give them a salary.

Calculating overtime for salaried employees

There are two ways to calculate overtime wages for salaried employees. The first method is used when an employee receives a salary that covers a fixed number of worked hours. The second method is used when an employee receives a salary that covers all worked hours.

The two methods are similar, yet have different outcomes on the employee’s wages.

Overtime wages for a salary with fixed hours

For this example, let’s assume your employee earns $500 per week. You expect that employee to work 36 hours a week; however, this week they worked 50 hours.

Step 1: Calculate the regular hourly rate.

Divide the weekly salary by the number of hours you expect the employee to work.

$500 / 36 hours = $13.89 per hour

Step 2: Calculate regular wages up to 40 hours.

Since overtime pay starts after 40 hours worked a week (according to FLSA rules), calculate the employee’s regular wages using the regular hourly rate. If you expect the employee to work 40 hours a week, you can skip this step since the regular wages will be the same as the weekly salary.

40 x $13.89 = $555.60 total regular wages

You can also set a lower hour starting point for overtime (e.g., any hours worked after 36 hours count toward overtime). If you choose a lower overtime starting point, multiply the hourly rate by that number instead of 40. (Using the example in the example above, the regular wages would be: 36 x $13.89 = $500.04 total regular wages. You would then pay the employee for 14 overtime hours instead of 10.)

Step 3: Calculate the overtime hourly rate.

Usually the overtime rate is time-and-a-half, so multiply the regular hourly rate by 1.5.

$13.89 x 1.5 = $20.84 per hour

Step 4: Calculate the overtime wages.

Multiply the overtime hourly rate by the number of extra hours the employee worked.

$20.84 x 10 overtime hours = $208.40 total overtime wages

Step 5: Calculate the total wages.

Add together the total regular wages and total overtime wages.

$555.60 + $208.40 = $764 total wages for the week

Overtime wages for a salary covering all worked hours

For this example, let’s assume your employee earns $500 a week and salary covers all hours worked, no matter how many hours the employee works. This week, your employee worked 50 hours.

Step 1: Calculate the regular hourly rate for the week.

Divide the weekly salary by the total number of hours the employee worked.

$500 / 50 hours = $10 per hour

Step 2: Calculate the overtime hourly rate.

You have already accounted for the overtime hours once in the regular hourly rate. Because of this, you will multiply the regular hourly rate by 0.5 (instead of 1.5) to get the overtime hourly rate.

$10 x 0.5 = $5 more per overtime hour

Step 3: Calculate the overtime wages.

Multiply the overtime hourly rate by the number of overtime hours the employee worked.

$5 x 10 overtime hours = $50 total overtime wages

Step 4: Calculate the total wages.

Add together the total regular wages and total overtime wages.

$500 + $50 = $550 total wages for the week

Other considerations

If you pay a salaried employee on a weekly basis, calculating overtime wages will look the examples above. But, if you pay an employee with any other pay frequency, there will be another step. Since overtime is calculated based on hours worked over 40 in a workweek, you need to know your employee’s weekly wages. For example, if you pay an employee biweekly, you will first divide their biweekly salary by two to get their weekly rate.

Some states have additional overtime laws that require you to pay an employee overtime after working 8 or 12 hours in a day. Some states also require double-time pay in certain situations. Check your state’s overtime laws to learn more.

Want to make calculating overtime wages even easier? With our simple-to-use payroll software, you input the hours your employees worked and we do all the calculations for you. Add our online time and attendance software, and your employees can even enter the hours worked themselves using an employee portal. All you need to do is approve and run the payroll. Try both for free!

This article is updated from its original publication date of 10/29/15.

This is not intended as legal advice; for more information, please click here.