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Payroll & Taxes

Overtime Pay: What It Is and How to Calculate It

by FrankCrum on April 24, 2024

Calculating wage and hour for exempt vs. non-exempt employees

As a business owner, you know the importance of keeping your employees happy and motivated. That is why understanding and correctly implementing overtime pay can significantly impact your bottom line and employee satisfaction. In this article, we will break down the basics of overtime pay. In an effort to help you navigate this essential aspect of running your business with confidence and clarity.

What is Overtime?

In the United States, overtime is extra pay that hourly employees receive for working more hours than usual. This means that employees receive 1.5 times their regular hourly wage for any additional hours worked. This is commonly referred to as "time and a half."

You may be asking, how many hours is overtime? An employee usually earns overtime pay if they work more than a 40-hour workweek. However, employers are free to set their “workweek” beginning on any day and at any hour of the day.

These workweeks are fixed and regularly recurring periods of 168 hours, or seven consecutive 24-hour periods. Employers should establish a workweek in writing so that employees can understand what their overtime pay is based upon.

What Employees Can Get Overtime? (Exempt vs. Non-Exempt Employees, Exceptions)

In the United States, employers classify employees into two categories for overtime pay: exempt and non-exempt.

1) Exempt Employees: Exempt employees are not eligible for overtime pay. These are usually salaried employees who meet specific criteria set by the Fair Labor Standards Act (FLSA). The criteria surrounds their job duties and salary level.

2) Non-Exempt Employees: These employees are entitled to overtime pay under the law. They include hourly workers and those whose job duties are not considered exempt from overtime regulations.

In simpler terms, non-exempt employees receive overtime pay for working extra hours, while exempt employees do not. Properly classifying employees is essential to ensure compliance with overtime regulations and fair treatment of workers.

There are some exceptions to be aware of. For example, some highly compensated employees (HCEs) may still be eligible for overtime pay if they don't meet all the requirements for exemption. This includes those who earn more than a certain amount annually but are not paid on a salary or fee basis.

If you're not sure how to classify an employee, it's best to talk to HR or legal experts. This can help avoid any legal issues that might arise.

How is Overtime Calculated?

What is the overtime pay rate? How can overtime be calculated? Let's break down how overtime pay is determined in the United States with a simple example:

1) Regular Pay Rate: First, you need to know the employee's regular rate of pay. This is usually their hourly wage, but for salaried employees, it's calculated by dividing their salary by the number of hours they typically work in a week.

2) Overtime Rate: Overtime pay is calculated at one and a half times the employee's regular pay rate. This means if an employee earns $10 per hour, their overtime rate would be $15 per hour ($10 x 1.5).

3) Hours Worked: Next, you need to determine how many hours the employee worked in a given workweek. Employees earn overtime for any number of hours worked beyond 40 in a week.

4) Overtime Calculation: To calculate overtime pay, multiply the number of overtime hours worked by the overtime rate. For example, if an employee worked 45 hours in a week at a regular pay rate of $10 per hour, their overtime pay would be calculated as follows:

a. Regular Pay: 40 hours x $10 = $400
b. Overtime Pay: 5 hours x $15 = $75
c. Total Pay: $400 (regular pay) + $75 (overtime pay) = $475

So, in this example, the employee's total pay for the week would be $475, which includes both their regular pay and overtime pay.

How does Overtime work in a Two Week Pay Period? (Bi-Weekly)

You might think that because a bi-weekly pay period covers two weeks, totaling 80 hours, you'd only pay overtime if an employee works more than that. However, it is not that straightforward. Even if an employee works just 80 hours in a pay period, they could still qualify for overtime.

Let's take a look at an example: If an employee works 45 hours in one week but only 35 hours the next (adding up to 80 hours total), they'd still earn 5 hours of overtime pay, that the employer must pay, for the 5 hours worked beyond 40 in the first week.

How is Overtime Paid on a Semi-Monthly Pay Period?

When you pay your employees twice a month, it's called a semi-monthly pay period. This can make calculating overtime a bit trickier than if you pay weekly. A semi-monthly pay period is a total of 24 paychecks per year. Typically, they occur on fixed days like the 1st, 15th, or 30th of the month.

Now, here is where it can get complicated. Because the month doesn't always line up perfectly with a fixed number of workweeks, sometimes the workweek might not end until the next pay period starts. So, if an employee works extra hours in the first half of the month and then again in the second half, you'll need to ensure they get paid overtime properly.

Overtime Laws (Federal and State)

Overtime laws are meant to ensure that employees are fairly compensated for their extra time and effort on the job. Understanding both state and federal overtime pay laws is crucial to ensure compliance and avoid legal issues. At the federal level, the Fair Labor Standards Act (FLSA) governs overtime pay requirements for most employees. According to the FLSA, non-exempt employees must be paid overtime at a rate of one and a half times their regular hourly rate for all hours worked over 40 in a workweek.

Some states have their own overtime pay laws that may offer extra protections or be different from federal rules. For example, some states have different thresholds for overtime pay, different definitions of exempt vs. non-exempt employees, or different calculations for overtime rates.

As a business owner, it's your responsibility to be aware of both federal and state overtime pay laws that apply to your business and ensure that you're meeting all requirements. Failure to comply with these laws can result in legal consequences, including fines and lawsuits. Staying informed and keeping accurate records of employee hours worked is essential to avoid potential penalties.

Keeping accurate records of hours worked each week is crucial, regardless of when employees are paid. By using a timekeeping system like UKG through FrankCrum, you can track overtime correctly when employees work more than 40 hours in a workweek. This can keep you in compliance with overtime laws and your employees happy.

At FrankCrum, our mission is to help businesses become the best they can be. To learn more about our comprehensive services, contact us today.


FrankCrum is a professional employer organization (PEO), founded in 1981 dedicated to helping business owners boost HR capabilities and broaden convenient services and benefits to employees. The origin of FrankCrum dates back to 1981, when Frank W. Crum, Jr. and his father, Frank Crum, Sr., founded the Great American Temporary Service. With a passion for helping small business owners succeed, the company has evolved and grown over several decades.