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Business Math: Calculating Overtime By Hand

Calculating overtime by hand can be risky. The Federal and State governments have set a lot of rules to ensure that employees get paid fairly for the time they work over 40 hours, and if a company doesn’t know and follow all of those rules, overtime lawsuits often result.

For example, a company must understand a few things before even beginning to add up hours:

  1. Overtime is calculated by the week, and not every two weeks.
  2. The work week remains the same week after week regardless of the pay period.
  3. An employee working for a business that operates under two names still must be paid time and a half for any hours worked over 40.
  4. Comp time cannot be offered in lieu of overtime compensation (for private companies).

If a business gets any of these points wrong, the employee could be shorted their overtime compensation and if the Department of Labor finds out, the company could be sued. It gets even trickier if your business is in California or Colorado. There are even more specific state laws that a company must follow, including double time pay.

How to Calculate Overtime By Hand

First, determine the work week

Overtime needs to be calculated over a 7 day workweek. This is usually from Sunday at 12am until Saturday at 11:59pm. Then, figure out which hours are contained in which workweeks. This is easy if you use a weekly or bi-weekly pay period, since the pay periods just include two work weeks. Calculating overtime for a bi-monthly or monthly pay period, however, is a little more complicated. Work weeks will sometimes split between two pay periods. So each pay period will need to be compared with the previous one to figure overtime for the work week which was split.

This probably sounds complicated so let me give an example.

Pay Period 1: Wednesday, Jan 1st through Wednesday, Jan 15th

Pay Period 2: Thursday, Jan 16th through Friday, Jan 31st

An employee works 30 hours in Pay Period 1. He was hired on the 13th and worked 30 hours on Monday, Tuesday, and Wednesday. In the next pay period he worked 20 more hours on Thursday and Friday of week one and was let go at the end of the week. It would look at first glance like he doesn’t need to collect overtime on that paycheck because he only worked 20 hours but, in fact, he does. Here’s why: The 20 hours that he worked in the second pay period was a part of the workweek that he was already paid for in the first pay period. In that workweek, then, he worked a total of 50 hours. He has already been paid for 30 of those hours so what he needs to be paid for now is the 20 unpaid hours and the overtime portion for the total over 40. If he made $10/hr, he would need to receive $200 of straight pay and $50 of overtime on this pay check.

Be careful! Don’t double pay your employee. The 10 hours overtime that the employee needs to collect is just the overtime portion – the straight pay has already been paid on the previous paycheck.

Next, determine if your state requires double time pay

Some states require that employees who work over 12 hours in one day or 7 days in a row should be paid double time. This can be confusing because employees still make time and a half for the hours they work over 40 but also need to be compensated double time for the special instances.

Again, this is getting complicated. Let me give another example.

If the employee works 42 hours in one week and one of those shifts was a 13 hour shift, the employee would need to be paid 1 hour double time (for the time worked over 12 in a day), 4 hours time and half (for the time worked over 8 in a day), and the remaining 37 as straight pay.

Last, add straight pay to the overtime pay

Once you have determined the employee’s hours, all you have to do is multiply the straight hours times the employee’s normal wage, and the overtime hours by time and a half, and any double time hours by double the employee’s pay.

For some employees, in some states, with weekly or bi-weekly pay periods, the calculations can be pretty easy but there are many situations where overtime calculations get very complicated. In these situations it is probably better not to do it yourself but rather hire an expert. A bookkeeper or a reliable time tracking service like ours is the way to go to ensure simplicity and accuracy.

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