How to Calculate Overtime for Hourly Employees

Overtime pay is one of the most common sources of payroll errors — and one of the most legally exposed. Getting it wrong can mean back pay, penalties, and lawsuits. Here's how it works, how to calculate it, and how to avoid costly mistakes.

What Is Overtime?

Overtime is the additional pay rate that applies when an employee works beyond a standard threshold. In the United States, the baseline federal rule under the Fair Labor Standards Act (FLSA) is:

• Overtime applies to non-exempt employees who work more than 40 hours in a workweek.
• The overtime rate is at least 1.5× the employee's regular rate of pay (commonly called "time and a half").

Important: Some states have stricter rules — daily overtime thresholds, double-time requirements, and lower weekly thresholds. California, for example, requires overtime after 8 hours in a single day. Always check your state law.

What Is "Time and a Half"?

Time and a half means the employee earns 1.5 times their regular hourly rate for every overtime hour.

Example: An employee earns $18/hour.

• Regular rate: $18.00/hour
• Overtime rate: $18.00 × 1.5 = $27.00/hour

Every hour worked beyond 40 in the workweek is billed at $27.00 instead of $18.00.

Basic Overtime Calculation

Formula:

Overtime pay = (Hourly rate × 1.5) × Overtime hours
Total pay = (Regular hours × Hourly rate) + (Overtime hours × Hourly rate × 1.5)

Example: An employee works 47 hours in a week at $18/hour.

• Regular hours: 40
• Overtime hours: 7
• Regular pay: 40 × $18 = $720.00
• Overtime pay: 7 × $27 = $189.00
• Total: $909.00

What Is the "Regular Rate of Pay"?

The regular rate isn't always just the base hourly wage. The FLSA includes certain additional compensation in the regular rate calculation, including:

• Production bonuses and commissions
• Shift differentials (extra pay for working nights or weekends)
• Non-discretionary bonuses (bonuses tied to performance targets)

Not included in the regular rate:

• Gifts and discretionary bonuses
• Vacation, holiday, and sick pay
• Reimbursements for expenses

If an employee receives a non-discretionary bonus, you may need to recalculate their blended regular rate and pay additional overtime on the bonus portion. This is a common audit finding — consult a payroll professional if your bonus structure is complex.

What Is the Workweek?

Overtime is calculated per workweek — a fixed, regularly recurring period of 168 consecutive hours (7 days). You define when your workweek starts and ends. Common choices:

• Sunday midnight to Saturday midnight
• Monday 12:00 a.m. to Sunday 11:59 p.m.

You can't average hours across two weeks to avoid overtime. If an employee works 50 hours one week and 30 the next, they're owed 10 hours of overtime the first week regardless of the light week that followed.

Daily Overtime (State-Specific)

If you operate in California, Nevada, or a handful of other states, daily overtime rules apply:

California daily overtime rules:

• More than 8 hours in a day → 1.5× pay for hours 9–12
• More than 12 hours in a day → 2× pay for hours beyond 12
• 7th consecutive day of work in a workweek → 1.5× for first 8 hours, 2× beyond 8

These stack with the weekly calculation — employees get whichever results in higher total pay.

Exempt vs. Non-Exempt Employees

Overtime rules only apply to non-exempt employees. Exempt employees — salaried workers who meet the FLSA's duties test and salary threshold (currently $684/week at the federal level) — are not entitled to overtime under federal law.

Misclassifying non-exempt workers as exempt is one of the most common wage-and-hour violations. If an employee is "salaried" but their job duties are primarily routine or manual, they may still qualify for overtime protection. When in doubt, get a legal opinion.

Overtime for Tipped Employees

Tipped employees covered by the FLSA (those earning more than $30/month in tips) have a different regular rate structure. Their overtime rate is calculated on the full minimum wage, not the tipped minimum wage — meaning you can't simply use the $2.13/hour tipped base for overtime calculations. Check your state's specific rules on tipped overtime.

How to Avoid Unplanned Overtime

1. Track hours in real time. If you're waiting until Friday to see who's approaching 40 hours, you're reacting instead of managing.

2. Set overtime alerts. Kwilio Scheduling tracks clocked hours per employee per week and flags when approving a shift would push someone into overtime before you commit.

3. Use open shifts strategically. If a shift opens up mid-week and your best candidate is already at 38 hours, post it as open — someone with fewer hours may claim it.

4. Account for all work time. Pre-shift meetings, training, and time spent on required tasks before clocking in all count as compensable work time under the FLSA.

5. Keep accurate time records. The FLSA requires employers to maintain records of hours worked and wages paid for at least two years. GPS clock-in, like Kwilio Scheduling's geofenced time tracking, creates an automatic, timestamped record.

Payroll Reports and Overtime

When it's time to process payroll, your time records should clearly show:

• Total regular hours per employee per workweek
• Total overtime hours
• Regular rate used for overtime calculation
• Any bonuses that affect the regular rate

Kwilio Scheduling's payroll reports export per-employee time totals broken down by regular and overtime hours, mapped to your configured workweek — ready to hand off to your payroll processor or accountant.

Overtime law is complex, and this guide covers the federal baseline. Always verify the rules that apply in your specific state and consult a payroll professional or employment attorney for your specific situation.