How to Calculate Overtime Pay for Non-Exempt Employees?

Posted In | Human Resources | HRMS | Payroll

Overtime pay is a crucial aspect of payroll management for non-exempt employees, as it ensures they are fairly compensated for the additional hours they work beyond the standard workweek. Non-exempt employees are generally eligible for overtime pay under the Fair Labor Standards Act (FLSA) and other applicable state laws. In this article, we will discuss how to calculate overtime pay for non-exempt employees, ensuring accurate and compliant payroll processing.


1. Determine employee eligibility for overtime pay

The first step in calculating overtime pay for non-exempt employees is to determine their eligibility. Under the FLSA, non-exempt employees are typically eligible for overtime pay if they work more than 40 hours in a workweek. Some states may have additional overtime requirements, such as daily overtime, so it's essential to familiarize yourself with the specific regulations applicable to your business.


2. Track hours worked

Accurate timekeeping is critical for calculating overtime pay. Implement a reliable time and attendance system to ensure that employee hours are accurately recorded and reported. This can help prevent payroll errors, such as underpayment or overpayment of wages, and ensure compliance with overtime regulations.


3. Calculate regular pay

Before calculating overtime pay, you must determine an employee's regular pay. For hourly employees, this is typically their hourly wage multiplied by the number of hours worked in a workweek, up to the standard 40 hours. For employees with a fluctuating workweek or who receive non-discretionary bonuses or commissions, the regular rate of pay may need to be calculated differently. Consult the FLSA guidelines or seek legal advice to ensure accurate calculations.


4. Calculate overtime pay

Overtime pay is generally calculated at one and a half times the employee's regular rate of pay for each hour worked beyond the standard 40-hour workweek. To calculate overtime pay, simply multiply the employee's regular rate of pay by 1.5, and then multiply this by the number of overtime hours worked.

For example, if an employee earns $15 per hour and works 45 hours in a workweek, their overtime pay would be calculated as follows:

5. Account for state-specific overtime regulations

Some states have additional overtime regulations that employers must follow, such as daily overtime or double-time pay for hours worked beyond a certain threshold. Familiarize yourself with your state's specific overtime requirements and ensure that your payroll calculations are in compliance with these regulations.


6. Include overtime pay in employee paychecks

Once you have calculated overtime pay for your non-exempt employees, ensure that this amount is accurately included in their paychecks. Regularly review your payroll processes to ensure accurate calculations and compliance with overtime regulations.


7. Maintain accurate records

It's essential to maintain accurate records of employee hours worked, regular pay, and overtime pay. Under the FLSA, employers are required to keep these records for a minimum of three years. Accurate record-keeping can help protect your business in the event of an audit or wage and hour claim.


Calculating overtime pay for non-exempt employees is a critical aspect of payroll management, ensuring that your workforce is fairly compensated and your business remains compliant with federal and state regulations. By accurately tracking hours worked, calculating regular and overtime pay, and maintaining thorough records, businesses can effectively manage overtime pay and promote employee satisfaction. Prioritizing accurate and compliant overtime calculations is essential for fostering a positive work environment and minimizing the risk of costly payroll errors or legal disputes.