How to calculate overtime pay in 7 steps [examples + common mistakes]

You have tons of tasks as a business owner. One that’s easy to miss—but can be costly—is failing to pay overtime correctly. Figuring out how to calculate overtime pay all boils down to the state you’re in. 

For example, some states follow federal overtime laws that require you to pay 1.5 times an employee's regular rate of pay for any hours worked over 40 in a week. Others require overtime pay if an employee works more than a set number of hours in a day. 

If you run a business with employees, using software with built-in timesheets and mobile time tracking can help avoid overtime pitfalls. Still, as a business owner, it’s beneficial to know overtime calculations and mistakes to avoid: 

1. Decide which employees you need to pay overtime to
2. Figure the base pay
3. Find the overtime pay
4. Calculate the total pay owed
5. Calculate overtime pay for other hourly and salary employees
6. Know the overtime pay laws and regulations
7. Avoid common overtime mistakes employers make

1. Decide which employees you need to pay overtime to

For the most part, you only have to pay overtime for nonexempt employees, who are typically hourly workers who earn at least the minimum wage.

According to the Department of Labor, employees who make over $43,888 per year (effective July 1, 2024) or $58,656 (effective Jan. 1, 2025) are exempt from overtime.

2. Figure the base pay

Calculating overtime pay for hourly wages can be pretty simple. Start by gathering the hourly rates for all your hourly employees. For example, if you normally pay an employee $25 an hour, this is their normal hourly rate. 

You will multiply that by 40 hours—assuming you are in a state that requires overtime based on hours worked in a week—as opposed to hours worked in a day. From the example above, an employee earning $25 an hour would have a base weekly pay of $800 ($25 an hour x 40 hours). 

3. Find the overtime pay

The overtime pay formula is the employee’s regular pay rate times 1.5 times the number of overtime hours. For example, for an employee with a regular pay rate of $25 an hour, their overtime pay rate is $37.50 an hour ($25 x 1.5). 

Say that same employee works 50 hours in a week, giving them 10 hours of overtime. Their overtime pay is $375 ($37.50 x 10).

4. Calculate the total pay owed

Now it’s time to put the full overtime pay formula to work by adding the base pay and overtime pay to get the total pay owed to your employee. From the example above, the base pay was $800 and the overtime pay was $375. Thus, their total pay owed for the week is $1,175 ($800 + $375).

5. Calculate overtime pay for other hourly and salary employees

Beyond calculating overtime pay for your regular hourly employees, there are other cases where you’ll need to calculate and pay overtime. 

For example, you may have hourly employees who also get nondiscretionary bonuses that you need to pay overtime on or a nonexempt salaried employee who works over 40 hours in a week. 

Hourly employees and nondiscretionary bonus

If you offer an employee a bonus for completing a task that takes longer than their 40-hour workweek, you may owe overtime pay for the time they spent on the task. 

Let’s say you have an hourly employee making $15 an hour, and they put in a 43-hour week with a $50 bonus. Below is an example of the calculation: 

• Regular pay = $15 per hour x 43 hours = $645
• Total pay with bonus = $645 + $50 = $695 
• Implied hourly rate with bonus = $480 / 43 hours = $16.16 per hour 
• Overtime pay = $16.16 per hour x 1.5 x 3 hours = $72.72 
• Total pay = $695 + $72.72 = $767.72

Hourly employees with multiple pay rates

Some employees might work different shifts with different rates of pay—or they might even have two different positions with two different rates.

 To calculate this rate, you must use a blended, weighted average. Let’s say your employee worked 10 hours on two jobs in a given day—one at $10 an hour for 8 hours, then another at $12 an hour for 2 hours, and you’re in a state that uses daily overtime pay of eight hours. Here’s the calculation: 

• Regular pay = ($10 x 8 hours) + ($12 x 2) = $104 
• Weighted average rate = $104 / 10 hours = $10.4 per hour 
• Overtime pay = $10.40 per hour x 1.5 x 2 hours = $31.20 
• Total pay = $104 + $31.20 = $135.20 

Salary employee overtime pay calculation

While most salary employees are exempt from overtime pay, you may still need to know how to calculate overtime pay for salary employees. That is, you can have salaried nonexempt employees that you will need to pay overtime. To pay overtime wages to these employees, divide their weekly pay by the number of hours they work in a week. 

For instance, let’s say you have a nonexempt salary employee who makes $800 a week and works 40 hours a week. Their implied hourly rate is $20 ($800 / 40). If they work five hours of overtime pay during a given week, their overtime pay would be $150 ($20 x 1.5 x 5).

6. Know the overtime pay laws and regulations

Many overtime laws can vary from state to state. There are two types of state overtime laws: one calculates overtime by day and the other by week. 

The first is states where overtime is based on hours worked in the day. These states require that employees earn overtime if they work more than a certain number of hours in a single day:

• Alaska: Requires overtime for working more than 8 hours in a day. 
• California: Requires overtime for working more than 8 hours in a day. 
• Colorado: Requires overtime for working more than 12 hours in a day. 
• Florida: Requires overtime for working more than 10 hours a day for manual laborers without a written contract agreeing to otherwise. 
• Nevada: Requires overtime for working more than 8 hours in a day. 
• Oregon: Requires overtime for working more than 10 hours in a day for mill, factory, or manufacturing companies, or 8 hours for timer-related activities. 
• Puerto Rico: Requires overtime for working more than 8 hours in a day.

All remaining states base overtime pay on an employee’s work week. For example, for these states, if an employee works ten hours on Monday, six hours on Tuesday, and eight hours on Wednesday, Thursday, and Friday, you will not owe them overtime pay. This is different from some states above, which may require overtime pay for the two extra hours worked in a 10-hour day.

7. Avoid common overtime mistakes employers make

Overtime can be complicated, so it’s no wonder that many employers make mistakes. 

Payroll mistakes that violate labor laws could lead to investigations from the DOL, legal action, and lawsuits. That’s why it’s best to avoid mistakes like these:

• Averaging hours: If an employee works 45 hours one week, then 35 the next, an employer cannot average this to 40 total and not pay overtime. You must pay the employee five hours of overtime pay for the first week.
• Not paying for unauthorized overtime: Even if you didn’t authorize an employee to work overtime, you still have to pay their overtime rate if they work overtime. 
• Undercounting time worked: It’s best to use a time-tracking system that carefully manages and tracks time spent at work to avoid this mistake. 
• Calculating overtime pay based on hourly rate only: If your employee does earn nondiscretionary bonuses, their over rate must include their hourly rate plus the amount from bonuses.
• Not following state laws: Remember, not every state’s employment laws work the same. It’s important to know your particular state’s laws so you avoid overtime mistakes on payroll.

Often, employers may just accidentally pay the employee’s regular rate for their weekly salary, forgetting to account for overtime hours. That’s why keeping track of your employee’s hours of work in each pay period—as well as exemptions, double time, and state and federal laws—is critical.

Next steps for streamlining your payroll process

Most business owners have plenty of payroll questions, from figuring out how to calculate overtime pay and bonuses to paying and filing taxes. The important thing to remember is that you stay on top of your payroll responsibilities in real-time. That way, you can avoid overtime pay calculation mistakes, like underpaying employees or failing to follow your state’s laws.

QuickBooks Payroll makes keeping track of your organization’s pay simple. Easy-to-read time sheets and reports, invoice processing, and direct deposit capabilities, make it easier to ensure you’re compliant and responsibly paying your employees.



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