Accurate payroll is crucial for remunerating your employees on time and correctly. A happy workforce is the engine of a thriving company. Mastering payroll is also crucial for boosting employees' morale and helping to comply with labor laws.
Calculating wages requires considering several factors, such as working hours, perks and benefits, holidays, time off, and overtime. If your employees are eligible, you must pay them overtime for the additional hours they work.
The most common method to calculate this rate is time and a half.
TABLE OF CONTENTS
Read next and learn more about time and a half and how to calculate it.
Time and a half is the minimum rate you must pay your eligible employees for every hour they work above the required 40-hour week.
The Fair Labor Standards Act (FLSA) states that non-exempt employees are entitled to minimum wage and overtime pay.
As an employer, you must pay your workers the usual hourly rate (not less than $7.25 per hour) for 40 hours a week.
FLSA requires employers to pay at least time and one-half of the hourly rate for any additional working hour.
While the workweek can be different from the calendar week, the FLSA states that employers must not pay time and a half for every hour worked on weekends or holidays if those hours fall within the 40-hour week limit.
Not all employees who work overtime qualify for time and a half pay.
The Payroll department must know which types of employees are eligible for overtime to comply with federal guidelines.
FLSA separates the workforce into two distinct categories: exempt and non-exempt, based on several factors, such as salary and job responsibilities.
As exempt employees have higher and better-paid positions, they are not eligible for overtime pay.
By contrast, most hourly paid workers holding mid- or low-level positions are non-exempt employees, and according to FLSA requirements, you must pay them time and a half when they go into overtime.
As previously mentioned, once a non-exempt employee exceeds the 40 work hours/ week threshold, you must pay them the minimum time and a half rate for each additional hour.
In some states, labor laws mandate you to pay overtime to non-exempt employees working more than eight hours in a day. For example, worker who puts in more than eight hours a day is entitled to overtime pay in Alaska, California, and Nevada.
Working on weekends or national or religious holidays does not legally count as working overtime.
However, providing holidays or paying extra for your workers promotes a better work-life balance, which improves your company’s bottom line.
When calculating time and a half for your non-exempt employees, you should consider the type of their wage: salary or hourly rate.
When your workforce includes hourly employees, determining time and a half is straightforward, as you know the hourly rate.
Here are the main steps to compute overtime pay.
The hourly rate represents the amount of money you and your employee agreed upon for each worked hour, considering the federal minimum wage of $7.25/ hour; you must highlight the hourly rate in the employment agreement.
Let’s talk numbers!
Say Jane is an hourly employee within your team earning a base rate of $12 per hour.
This week, Jane has worked a total of 50 hours:
40 hours weekly standard time + 10 hours overtime.
Step 1: Calculate the regular wage per week
Multiply the hourly rate by the number of regular hours in a week
$12 per hour x 40 hours per week = $480 weekly wage
Step 2: Determine the hourly overtime
Multiply your employee hourly rate by time and a half
$12 per hour x 1.5 = $18 per hour of overtime
Step 3: Calculate the overtime pay for all the additional worked hours
Multiply the hourly overtime rate by the number of additional hours
$18 per overtime hour x 10 (overtime hours) = $180 (total overtime)
Step 4: Calculate the gross weekly wage
Add both regular and overtime pay (Step 2 + Step 4)
$480 (weekly wage) + $180 (overtime pay) = $660 (gross payment)
In our example, on the payment day, you must pay Jane the gross amount of $660, accounting for 50 working hours per week (40 regular and 10 overtime hours).
According to the U.S. Department of Labor, when the wage of a salaried employee falls under $35,568 per year, you must pay them overtime.
Since they receive a fixed amount, calculating time and a half for salaried employees is slightly different.
Here is an example of calculating overtime for Tim - a salaried white collar earning $680 per week.
$680 (weekly pay) x 52 (weeks in a year) = $35,560 (less than the federal minimum regulated amount of $35,568)
This week, you asked Tim to work 15 overtime hours.
Thus, you must calculate the weekly wage for 55 hours: 40 hours weekly standard time + 15 hours overtime.
Step 1: Determine the per-hour rate
As Tim’s weekly fixed wage is $680, your first step is to calculate the hourly rate.
$680 (weekly fixed wage)/ 40 (hours in a week) = $17 per hour of regular work
Step 2: Calculate time and a half
Once you know the hourly rate, you can use the same equation as above to determine the overtime hourly rate
$17 (per hour) x 1.5 = $25.5 (per overtime hour)
Step 3: Compute the total overtime wage
We know Tim worked 15 hours overtime, paid $25.5 each.
$25.5 (per overtime hour) x 15 (overtime hours) = $382.5 (total overtime)
Step 4: Calculate the total gross weekly pay
Similar to the equation for calculating Jane’s weekly gross pay, add regular week and overtime weekly wages to determine the total pay for the week.
$680 (weekly fixed amount) + $382,5 (weekly overtime) = $1,062.5 (gross payment)
In this example, Tim must receive $1,062.5, consisting of a regular weekly wage and time and a half pay for 15 hours of overtime work.
What counts as a work week?
As the employer, you can pre-define any seven-day period as a work week for your employees. This period can differ from the calendar week.
When must you pay time and a half?
According to the FLSA, when your non-exempt employees exceed the 40-hour-a-week threshold, you must pay them time and a half for the overtime hours.
Are part-time workers eligible for time and a half?
Yes. Both full and part-time employees are eligible for time and a half for overtime worked hours.
Does working on weekends or holidays qualify as overtime?
No. FLSA does not require you to pay overtime for employees working on holidays or weekends unless the hours worked during these periods are over the 40 weekly regular hours.
What is the overtime rate for $15 an hour?
$15 x 1.5 (time and a half) = $22.5 rate per overtime hour
What is the overtime rate for $16 an hour?
$16 x 1.5 (time and a half) = $24 rate per overtime hour
What is the overtime rate for $17 an hour?
$17 x 1.5 (time and a half) = $25.5 rate per overtime hour
What is the overtime rate for $18 an hour?
$18 x 1.5 (time and a half) = $27 rate per overtime hour
What is the overtime rate for $19 an hour?
$19 x 1.5 (time and a half) = $28.5 rate per overtime hour
What is the overtime rate for $20 an hour?
$20 x 1.5 (time and a half) = $30 rate per overtime hour.