Overtime Pay: What It Is and How To Calculate It

Updated March 20, 2023

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When you work beyond the standard 40-hour workweek, you may be eligible for overtime pay. While national and local guidelines regulate overtime pay, it may be useful to learn about the general way overtime pay works. Understanding it can help you determine your eligibility and predict how much you can expect to earn when you put in overtime hours at work. In this article, we define overtime pay, explain how it works, review different types of overtime and provide the steps you can follow to calculate it.This article is for information purposes only and is not intended to constitute legal advice; you should consult with an attorney for any legal issues you may be experiencing.

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 can earn overtime pay for those 10 extra hours. Your overtime eligibility depends on your weekly earnings and how many hours you work.Related: How Does Overtime Work? (With Definition, Calculations and FAQs)

How does overtime pay work?

How overtime pay works depends on a variety of factors. Some employees may be exempt from overtime pay. Your eligibility also depends on the number of hours worked and your weekly pay. Here are some considerations:

Exempt vs. nonexempt employees

Employees fall under one of two classifications: exempt and nonexempt. Here's some information for both:

Exempt

Exempt employees in the United States are unable to receive overtime from their employer, meaning they're unable to receive the overtime pay they may otherwise be entitled to per the Fair Labor Standards Act (FLSA). This group includes individuals who make at least twice the minimum wage in their area. While salaried individuals in fields like sales, executive management and administration are often exempt, some individuals who work on a salary basis still qualify for overtime pay. These are some categories to which exempt employees may belong:

Executive
Administrative
Computer
Highly-compensated
Outside sales

Nonexempt

Nonexempt employees do earn overtime pay when they work more than 40 hours in a workweek. Examples of nonexempt employees typically include hourly staff, rather than salaried employees. 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, these employees receive overtime pay according to whichever law offers a higher amount. These are some examples of exempt positions:

Production roles
Police officers
Administrative assistants
Manufacturing roles
Construction roles
Contractors
Firefighters
Retail associates
Paramedics

Overtime pay rules

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. Federal law requires employers to pay employees an overtime rate of at least time and a half their regular pay rate. For example, if you typically earn $20 per hour, your overtime pay amounts to $30 per hour. As of May 20, 2020, employers also may give incentives or bonuses to salaried, nonexempt employees whose hours vary per week, per the DOL.Some employers offer double-time pay, which is 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.Related: 21 Ways To Make Extra Money

Types of overtime

Some employers may require overtime as stated in your employment contract. Others may offer it as an option where there's extra work to be done. Understanding how your workplace handles overtime may help you establish your expectations. Here are some other types of overtime:

Time off in lieu (TOIL): Some employers give their employees additional time off to compensate for long hours. The employer and employee work together to schedule this time off.
Voluntary overtime: This refers to overtime work your employer offers that you're free to accept or decline without penalty. Employees who accept receive overtime pay in exchange for their additional work.
Compulsory overtime: Compulsory overtime, or mandatory overtime, has provisions within the terms of your contract. Though it's in the contract, employers still follow overtime regulations to remain compliant.
Nonguaranteed overtime: This is overtime that your employer may or may not offer. If overtime is made available, you are required to work those hours as indicated in the terms of your contract.

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How to calculate overtime pay

Follow these steps as you calculate overtime pay:

1. Learn if you're exempt

Determine whether you classify as a nonexempt or an exempt employee based on FLSA criteria. Consider any exceptions to these regulations for some industries and jobs. If FLSA regulations are inapplicable to you, you may be able to make arrangements with your employer to earn extra pay.Related: What Does an Exempt Employee Actually Mean?

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. Review your hours over the workweek and if you've worked over 40 hours, you can expect your paycheck to include overtime pay.Related: What Are the Average Hours Worked Per Week? (Plus Factors)

3. Find your hourly pay rate

If you're an hourly employee, you likely 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 you're working the standard 40 hours per week, divide your weekly pay amount by 40 to determine your hourly rate, which is $24.Related: Hourly to Salary Calculator: How To Convert Your Wages

4. Research your employer's overtime pay rate

While most employers offer an overtime rate of time and a half, others offer double time or their own unique rate that's at least time and a half. Additional state laws may also determine how much overtime you're entitled to as an employee. 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. Calculate your overtime pay

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. This reveals the amount of overtime pay you can expect to receive.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 can 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.Related: How Is Overtime Calculated? 3 Methods with Examples

Frequently asked questions

What is the 8/80 rule?

Health care employees often use the 8/80 rule most, as it helps make scheduling in nursing, medical and residential facilities more flexible. For the 8/80 rule to be in effect, the staff member has it in writing, often in their contract. When following this rule, you receive overtime pay when you work more than 80 hours in a two-week period, or when you work more than eight hours in a day. This means if you work 10 hours during the first day of the pay period, you receive overtime pay for the additional two hours.Related: Nurse Schedules: Pros, Cons and Tips

How does biweekly overtime work?

If you're paid biweekly, your overtime is still based on the 7-day week. This means you can isolate each consecutive 7-day period in a 40-hour workweek to calculate your overtime pay. While your pay is biweekly, your hours per week are what count when determining overtime pay.Related: What Is Biweekly Pay and How Does It Work? (With Benefits)

What's the process for calculating biweekly overtime?

If you're paid biweekly and work 45 hours one week and 35 hours the next, even though you only 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. For example, you earn $20 per hour and get time and a half for overtime pay, which brings your rate up to $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 usual $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. This is $150 higher than your usual pay for a standard 40-hour workweek.