What is Overtime Pay and How Does It Work?

Many jobs are eligible for overtime pay, which is additional compensation for working more than the hours in a standard workweek. The benefit of working more hours is that overtime pays out at a higher rate than a worker’s set hourly wage. Rules governing overtime pay vary by state.

Overtime pay refers to the extra compensation hourly workers receive for working beyond the number of hours of a standard workweek. A typical workweek is 40 hours. Hourly workers eligible for overtime pay receive additional compensation for every hour worked over 40 in a typical workweek.?

What is Overtime Pay?

Overtime pay is extra compensation for working beyond the typical hours in a workweek. It pays out at a higher rate than an employee’s set wage.?

How does a person qualify for overtime pay? If a job pays an hourly rate, the worker is likely eligible to receive overtime pay. But how much is overtime pay? Rates vary by company, but overtime is typically calculated as time and a half the regular hourly rate. In some cases, it is double the hourly rate.

The Legality Behind Overtime Pay

The federal Fair Labor Standards Act (FLSA), plus certain state-level laws, dictate how companies must pay employees fairly.?

According to the U.S. Department of Labor (DOL), employees qualified to receive overtime “must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.” This applies to nonexempt, or hourly, workers working more hours than are part of a typical workweek.?

While certain salary thresholds exist, companies must typically pay time and a half by the hourly rate an employee makes.?

How Much is Overtime Pay?

At a minimum, overtime pay adds 50% to an employee’s hourly pay rate. This means the employee receives their hourly rate plus the 50% premium for every hour of overtime worked.?

Who is Entitled to Overtime Pay?

Employees considered nonexempt are eligible for overtime pay. What does nonexempt mean? Nonexempt is a classification of employee. They usually receive an hourly wage as opposed to a set salary. Nonexempt workers include:

• Restaurant workers
• Retail salespeople
• Interns
• Telemarketers
• Front-line medical workers like emergency medical technicians (EMTs) and certified nursing assistants

Who is Exempt from Overtime Pay?

Unlike nonexempt employees, exempt workers are not eligible for overtime pay. Three requirements define an exempt employee:

• Exempt employees receive a yearly salary rather than an hourly rate.
• According to the DOL, compensation for exempt employees must exceed criteria established by the FLSA, which means exempt employees cannot earn less than $684 per week or $35,568 per year.
• Professional roles that require a higher-level education or expertise are considered exempt.

Calculating Overtime Pay

To calculate overtime pay, first determine if an employee qualifies for overtime. Then:

• Monitor and track weekly hours, especially if an employee works split shifts.
• If hours add up to more than 40 in the workweek, an employee receives overtime pay in their paycheck.
• To calculate an employee’s overtime hourly rate, determine their regular hourly rate.
• Once you know the hourly rate, determine what the employer pays for overtime. Is it time and a half or is it double time?
• Typically, overtime pay is time and a half, or 1.5 times the regular hourly rate. For example, if the hourly rate is $25.50 an hour, the overtime rate is $38.25, or 1.5 times $25.50.

Common Questions About Overtime Pay

Employees often have questions about overtime pay, including what it is and how much it pays. Additional concerns often center around when an employee might receive double as overtime pay. While some employers pay their employees double for overtime, it is not a federal or state requirement.?

Here are more common questions:

Is Travel Time Considered in Overtime Pay?

No, overtime pay applies only to hours worked that qualify. While time spent traveling during normal working hours qualifies as time worked, commute time to or from a place of employment does not.?

How Does Overtime Work with Biweekly Pay?

The same rules apply even if paychecks go out on a biweekly basis, or every two weeks. An employee must work 80 hours in the pay period, but they can accrue overtime pay if they work more than 40 hours in a single workweek.?

If in week one, an employee works 42 hours and, in week two, that same employee works 38 hours, they are eligible to receive two hours of overtime pay even though their total hours equal 80.?

How Do Bonuses Impact Overtime?

Bonuses do impact overtime pay, but it depends on the type of bonus the company offers.?

A discretionary bonus is money an employer chooses to distribute with no obligation to an employee. This includes holiday bonuses. Discretionary bonuses do not factor into overtime pay calculations, and an employee is paid based on their regular rate of pay.?

Non-discretionary bonuses, expected bonuses that are part of an overall compensation package, do affect an employee’s overtime pay rate. In effect, non-discretionary bonuses raise an employee’s regular hourly wage, thereby raising the overtime pay rate.?

Final Thoughts About Overtime

It is important to understand the rules that regulate overtime pay. A job that offers overtime pay is a great benefit and allows a worker to earn more compensation monthly.?

Top Takeaways

• It is important to know whether an employee’s role is eligible for overtime. This is often contingent on whether the position is exempt or nonexempt.
• Understand pay rates and how they affect overtime pay rates. Typically, workers receive overtime pay at a rate of one and a half times their regular hourly wage.
• Workers should monitor and track hours weekly to determine whether they are eligible for overtime pay and to ensure they receive it.
• The FLSA and certain state-level laws set the guidelines for overtime pay.