How does overtime work at your company? Overtime pay for hourly employees has an additional pay rate for working more than a specific number of hours in a week. There is a minimum for overtime in the United States.
This minimum requires hourly employees to be paid one-and-a-half times the regular hourly rate for work over 40 hours a week. Whether you are an employer or employee, it is important to understand your company’s guidelines.
When you’re an employer calculating overtime pay for an employee, the definition of “workweek” means something very significant in legal terms. It’s actually the basis of determining overtime for purposes of the Fair Labor Standards Act (FLSA).
The FLSA applies on a workweek basis. An employee's workweek is a fixed and regularly recurring period of 168 hours -- seven consecutive 24-hour periods. The employer is free to determine the work week and it need not coincide with the calendar week. It may begin on any day and at any hour of the day.
It is a good practice to establish the workweek in writing (in your employee handbook) so your employees are also aware of what their overtime pay is based on. For example: “The Company’s seven-day workweek is from 12:00 a.m. Monday through 11:59 p.m. the following Sunday.”
Bi-Weekly and Semi-Monthly Pay Periods
With a few exceptions, the law does not require that your pay period be a single workweek. Under most circumstances, employers are free to pay weekly, bi-weekly (every other week) or semi-monthly (twice a month). However, regardless of your pay frequency, the rules regarding the determination of overtime remain the same: it is based on a seven day work week.
It is likely that if you pay weekly, your work week will coincide with your pay period, so there is limited confusion when it comes to the definition of overtime. But it’s a little more complicated for employers who pay bi-weekly and semi-monthly.
Bi-weekly Pay Periods
One might assume that since a bi-weekly pay period is equivalent to two seven-day workweeks, you would simply pay overtime if an employee works more than 80 hours in the pay period. However, it’s not that simple. An employee may work only 80 hours in a pay period but still be due overtime.
For example, if the employee works 45 hours in one week but only 35 the next week (total 80 in the pay period), they would still be entitled to 5 hours of overtime for the 5 hours worked over 40 hours in the first week.
Semi-monthly Pay Periods
Having a semi-monthly (twice a month) pay period can complicate things even more. Typically this pay frequency means employees are paid on the 1st and 15th of the month or the 15th and the last. Since there are not an even amount of workweeks in a month (and also not in a semi-monthly pay cycle), sometimes the work week will end during the upcoming pay period.
In this instance, you’ll know how much overtime is due, or the workweek may not end until the beginning of the next pay period and thus you would pay it on that next pay period.
For example: The employer's seven-day period runs from Sunday to Saturday, and their semi-monthly period is the 1st-15th, 16th through the end of the month.
For the period of the 1st through the 15th, the employee must be compensated at a regular rate of pay for 88 hours, and for 10 hours worked in excess. This figure includes the 80 regular hours from Weeks 1 and 2, the 10 overtime hours from Weeks 1 and 2, and the 8 regular hours worked on the 15th in Week 3.
For the period of the 16th through the 31st, the employee must be compensated for 94 regular hours and 14 overtime hours. This includes the remaining 32 regular hours from Week 3, the 5 overtime hours from Week 3, the 40 regular and 9 overtime hours from Week 4, and the 22 hours worked through the 31st on Week 5.
Note: some states may have special overtime calculations that need to be taken into consideration, but this specific example is based on the federal FLSA rules.
This is why it is imperative that your recordkeeping is done properly and consistently so you can show that you tracked hours on a weekly basis (regardless of when employees are paid) and that you paid overtime appropriately when it’s due: when an employee worked more than 40 hours in a workweek.