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Updated: May 3, 2024

Time and a half handbook: How employers can calculate overtime pay correctly

Published By:

Jon Davis

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Over 55% of workers in the United States are paid per hour, according to data from the US Department of Labor. And, if you have many hourly employees on your payroll (especially those who work overtime), it’s important to understand what time and a half pay is, the federal law that requires it, and how it’s calculated. Also, understanding which of your workers qualifies for time and a half (and when it should be paid), can go a long way toward keeping any confusion to a minimum when cutting paychecks for your employees.

 

To help businesses stay on top of overtime, in this article we’ll explain what “time and a half” is, when employers are legally required to pay it, some examples of how to calculate it, plus some common mix-ups that are easy to avoid.

What is time and a half pay?

To start, time and a half pay, also known as overtime pay, is always based (and calculated) using an eligible employee’s hourly pay rate. What does this mean? When you pay your employees time and a half, they are being paid 50% more than their regular pay rate. Only non-exempt employees are eligible for time and a half pay according to the Fair Labor Standards Act (FLSA), which is the federal law that sets all requirements for overtime pay and eligibility.

 

Generally speaking, most employees eligible for overtime are paid hourly, but there are some cases when a salaried employee may qualify for overtime pay (which we’ll talk a bit more about later in this article).

 

Next, we’ll talk about when overtime pay is usually due and what the regular hours of a typical work shift entail.

When should employers pay time and a half?

First things first: The FLSA guidelines consider 40 hours to be a regular work week. Why is this important to understand? Any non-exempt employees who work over the standard 40 hours will be eligible for a bump in pay (time and a half). As an employer, this means if any non-exempt employee on your staff works over and above 40 hours in a single week, you are required to pay time and a half.

 

Now that we know when time and a half is due, let’s talk a bit about how the math works out.

 

How do you calculate time and half?

To calculate time and a half pay, you’ll use both:

  • Your employee’s regular rate of pay – or what they are paid per hour
  • Plus another half of that hourly wage (which is added on top of their hourly rate)

 

For example, if you have an employee earning $15 per hour, you would multiply their regular pay rate by 1.5%, and the total would be the employee’s time and a half pay rate, which in this example comes out to $22.50. Let’s see how the calculation breaks out and adds up as a no-frills math equation:

  • $15 (regular rate of pay) x 1.5% (time and a half) = $22.50 (this equals the overtime rate of pay)

 

With a better understanding of the math behind calculating time and a half pay under our belts, let’s go over who qualifies and who does not.

Related resource:

After you’ve learned more about time and a half (and who qualifies for overtime), read our guide on shift differential pay to learn what it is and how some companies use it to encourage employees to work less desirable shifts.

Qualifying for time and a half: which employees are eligible?

In the simplest terms, an employee must be classified as non-exempt in order to be eligible for time and a half pay. It’s important that employees are categorized correctly, following FLSA guidelines, because when employees are misclassified and don’t receive overtime, employers could face fines that start at $1,000 per violation. To begin, it’s helpful to understand the difference between exempt and nonexempt employees.

 

Exempt vs nonexempt employees

As the name implies, in its Handy Reference Guide, the FLSA provides a lot of helpful information on how an employee should be categorized and the categories of employees that can be considered exempt. They also have a PDF download of the guide if you want to save a copy for your records.

 

What to know about exempt employees

Exempt employees are those who:

  • Receive a salary (and are not covered by the FLSA and in most cases do not receive overtime pay).
  • Earn more than $35,568 annually, which comes out to $684 per week
  • Have specific job duties that are considered exempt (more on that below)

 

FLSA rules state that an employee needs to fall into one of the following six exemption categories to be considered an exempt employee:

 

  1. Exemption for a number of executive positions, including management
  2. Administrative exemption which includes office work directly related to management
  3. Professional exemption for employees whose work is intellectual in science or learning
  4. Computer employee exemption which includes computer analysts, programmers, or software engineers
  5. Outside sales exemption for those employees whose primary duty is to solicit (and close) sales
  6. Highly compensated employees that are earning more than $107,432 annually

 

What to know about non-exempt employees

On the other hand, a non-exempt employee is:

  • Covered by the FLSA and receives overtime pay for extra hours worked.
  • Typically paid hourly, though it’s possible for salaried employees to be eligible for overtime if their pay falls below the FLSA threshold.
  • The employee does not fall into one of the exempt categories from the list above (which usually means they do not have a position that requires high-level administrative, executive, computer, and professional duties).

 

Keep in mind that federal law says that workers who clock in for more than 40 hours per week must be paid overtime. The US Department of Labor’s Wage and Hour Division recently fined a New Jersey employer for willfully denying overtime pay to many of their employees who worked more than 40 hours per week.

How to calculate overtime pay (plus examples)

Understanding the basics behind overtime pay can be helpful because sometimes employers need their staff to work extra hours on top of a standard shift. The good news is that calculating overtime pay is simple when you follow a few basic steps.

  1. Calculate any hours worked over 40 for the week and make sure that you are only including hours worked for that particular week. Remember that things like sick, vacation, or holiday pay should not be included in hours worked.
  2. Determine the overtime pay for each eligible employee using the calculation example above.
  3. Calculate the overtime pay for each employee by multiplying the total number of overtime hours by the overtime pay rate.

 

Even though this formula isn’t particularly complicated, let’s put it to the test with a fictional employee.

 

Overtime calculation example for hourly employees

Let’s say you operate a niche business that manufactures laptop bags for sports fans, and Judith is a non-exempt employee on your staff, earning $20 an hour. Between your busy season approaching (and a well-timed interview on a national fan podcast), demand for your product is up, and you ask Judith if she can take on a few additional hours. She is happy to help.

 

If Judith worked 50 hours in one week, she would be paid her regular hourly rate of $20 for the first 40 hours but would be paid time and a half for the 10 overtime hours. To determine Jane’s overtime rate, you’ll use the following calculation:

  • $20 (regular rate of pay) x 1.5% (time and a half percentage) = $30 (overtime rate of pay)

 

Now that we have Judith’s overtime rate figured out, the next step is multiplying it by the number of overtime hours worked.

  • $30 (overtime rate of pay) x 10 (overtime hours worked) = $300 (total overtime pay)

 

So, in our first example Judith would earn an additional $300 in overtime pay for that week, which should be added to her regular pay.

 

Now that we’ve covered one of the most commonplace situations where overtime applies, let’s talk about one that doesn’t happen as often.

Hold onto records

After learning everything there is to know about time and half, it’s a good idea to know which documents you need to hold onto. In our guide, we cover payroll record keeping rules employers should be aware of.

Calculating salary workers overtime pay

Though it’s less common, there are instances when an employee receives a salary — rather than an hourly wage — and is still eligible for overtime. This occurs when your employee cannot meet both the qualifications for an exempt employee under FLSA rules, which is that:

  • The employee has a minimum salary of at least $684 per week ($35,568 annually)
  • Eligible under one of the six overtime exemption categories described by the FLSA.

 

It’s also important to note that if you do have salaried non-exempt employees, you should be tracking their hours in the same fashion as hourly employees.

 

Though calculating overtime pay for salaried employees is similar to the above mentioned process, it requires a few more steps to get the numbers right.

  1. Calculate hours worked over 40 for the week. Again, make sure that you are only including hours worked for that particular week.
  2. Determine the overtime pay for your salaried non-exempt employees. First, you’ll need to calculate the weekly salary of your employee based on their annual salary.
  3. Next, you’ll need to divide their weekly salary by 40 hours to determine their hourly rate.
  4. Now that you have your employee’s hourly rate, you can calculate that by 1.5% to get their overtime rate.
  5. Calculate the overtime pay for each eligible employee by multiplying the total number of overtime hours by the overtime pay rate.

 

Now, let’s apply the steps to a hypothetical scenario involving a salaried employee (earning overtime) at a company.

 

Overtime calculation example for salaried employees

As we mentioned, it takes a little bit more math to calculate overtime pay for your salaried, non-exempt employees. To add up the numbers, we’ll figure out the pay for Jim, a salaried employee who worked 47 hours (putting in seven extra hours) the previous week and who earns $32,000 a year. To determine his overtime rate, we’ll first need to divide his annual salary by 52 to determine his weekly pay rate.

 

  • $32,000 divided by 52 = $615.38 (this dollar amount is Jim’s weekly salary).

 

Now that we have Jim’s weekly salary, the next step is to divide it by 40 hours to determine his current hourly rate.

 

  • $615.38 (Jim’s weekly salary) / (divided by) 40 = $15.38 (this is what Jim makes per hour).

 

Finally, we have all the information we need to calculate Jim’s overtime rate. Remember, this is done by multiplying the hourly rate of pay x 1.5% (which is time and a half).

 

  • $15.38 (Jim’s hourly rate) x 1.5% (time and a half) = $23.07 (this is Jim’s hourly rate with overtime factored in).

 

Drum roll please! Now that all the necessary calculations are complete, we can calculate Jim’s overtime pay.

 

  • 7 hours x $23.07 = $161.49

 

Jim will get paid his regular salary of $615.38 plus an additional $161.49 for overtime for the week.

 

If you have hourly workers that are putting in extra hours during the holiday season, you may be wondering how the numbers work out.

 

Overtime plus holiday pay

Companies are not required to pay time and a half to employees who work holidays because paying overtime for holiday hours is not subject to the FLSA’s regulations (although many extend it to their employees as a “thank you” for their work during the festive times of the year). It can get a little tricky if, during the regular work week, an employee is eligible for both overtime and holiday pay. In this case, overtime should be calculated based on their regular hourly wage only — with holiday pay left out of the equation.

  • For example, if your employee receives 8 hours of holiday pay for Monday, but does not work, then works 12 hour shifts the rest of the week, they will be eligible for 8 hours of overtime pay.
  • However, if they worked on the holiday, and then worked four 12-hour shifts, they would be eligible for 16 hours of overtime pay.

 

There are a few things to remember for companies that use bonuses to encourage team members to go the extra mile.

Can bonus pay be included in overtime?

Whether an employee is hourly or salaried, as long as they are classified as a non-exempt employee, the rules for including bonus pay in overtime are the same. Let’s take a look at how this would work.

  • Discretionary bonus – A discretionary bonus is given by an employer without any expectation on the part of the employee. Though It can be a welcome surprise for the members of your team, it should never be included in overtime pay calculations. For example, a Christmas bonus is considered discretionary.
  • Non-discretionary bonus – A non-discretionary bonus is generally tied to job performance and more often than not, an employee expects to receive it. The main difference is a non-discretionary bonus can be factored into the overtime calculation.

 

Similar to the examples we looked at earlier in this article, to account for a bonus in overtime pay, you would add the bonus amount to the employee’s total wages for the week to get their regular rate of pay. You would then multiply the regular rate of pay by 1.5% to arrive at their overtime pay.

Time and a half mishaps to avoid

Though the basics of time and a half are straightforward, there are some spots where an employer can slip. Here are some items to keep in mind.

  • Employee misclassification – Many employers make the mistake of assuming that paying an employee a salary rather than hourly automatically qualifies them for exemption. But to actually be exempt, in line with FLSA rules, employees must fall into one of the six categories we touched on earlier in this article.
  • Inaccurately tracking hours – If hours worked are not properly tracked, you may be underpaying your employees, which can result in hefty fines (and unwanted) attention from the Department of Labor.
  • Failure to pay for all hours worked – Employers can sometimes make the mistake of assuming that if overtime is not authorized, then they’re off the hook from paying their employees. However, if you have staffers working late, they need to be paid — whether it’s been previously authorized or not.
  • Forgetting state or federal laws – While employers should be familiar with FLSA laws, it is equally important for them to understand any rules in the state where they do business. For example, many states and jurisdictions have a higher minimum wage than their federal counterpart.
  • Miscalculating the regular pay rate – Though fairly straightforward, calculating the regular rate of pay when accounting for non-discretionary bonuses can sometimes cause confusion.

Flexible and functional

We chose OnPay based on their dynamic reporting and affordable payroll service, but after a year and a half we appreciate their thorough customer service and improvements which really help us streamline our payroll process.


— Mark Donati, Donati Family Vineyard, Inc

Bottom line: Employers should understand how time and a half works

Over 70 million people work hourly, and it’s likely that some of them work extra shifts (and earn overtime pay) from time to time.  That’s why understanding the ins and outs of time and a half, as well as how to calculate it, is important. Whether you’re an employer who relies on employees that can work more than 40 hours per week on a regular basis, or only occasionally need employees to put in a few extra hours, understanding the laws surrounding overtime pay and your obligations can help you stay compliant (and keep your staff happy and productive).

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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.

Frequently asked questions employers have about time and a half pay

  • What is the difference between double pay and time and a half?

    Double pay is pay that is twice an employee’s regular hourly wage, where time and a half is 1.5% of a worker’s rate of pay. Double time is not subject to FLSA rules, and currently only two states (California and Washington) have set rules for double time pay.

  • What's the difference between holiday pay and time and a half?

    Holiday pay is the pay received for a recognized holiday. Holiday pay cannot be factored into the overtime calculation, unless the employee works the holiday. And while employers are required to pay their employees for hours worked on a holiday, holiday pay is not regulated by federal wage laws, so employers are not required to pay their employees time and a half to work a holiday, though many choose to do so.

  • Do independent contractors get paid time and a half?

    To get paid time and a half, an individual has to be classified as a non-exempt employee. Because independent contractors are not employees, they are not eligible to receive time and a half.