3 min read

Are You Calculating Overtime Correctly?

Oct 11, 2017 6:30:00 AM

Calculating Overtime - FB.jpgCalculating overtime can be confusing. And mistakes are often costly. Not only can miscalculations upset your employees and negatively impact your employee experience, but they can also result in expensive lawsuits and penalties.

Do you understand the laws regulating overtime for your workforce? Are your employees properly classified as non-exempt and exempt? Are you accurately determining regular rate of pay for your overtime calculations?

Answering these questions for your specific workforce can be complicated. Below we address these items, as well as provide helpful resources from the Department of Labor (DOL). Unfortunately, the overtime situations you may be experiencing at your organization can be quite intricate, so consider consulting a trusted advisor to help ensure you’re avoiding costly overtime miscalculations.

What Laws Regulate Overtime?

The Fair Labor Standards Act (FLSA) contains Federal overtime provisions. Additionally, some states do have their own overtime laws in place – so it is important to understand which regulations apply to your workforce. When an employee is subject to state and Federal overtime laws, the higher standard will apply – of the standard that will provide the employee with the higher rate of pay.

Are Your Workers Properly Classified?

Generally, non-exempt employees are entitled to overtime pay through the FLSA, while exempt employees are not. So properly classifying your employees is important for overtime calculations.

The FLSA specifies several categories of employers and employees who are exempt from overtime requirements. Job titles alone are insufficient to determine an employee’s exempt status. Salary level, salary basis, and duties all factor into proper classification. For detailed information on exemptions, visit the DOL’s FLSA Advisor eTool.

The DOL did introduce a new rule in 2016 to redefine who qualifies as an exempt employee under FSLA, but in August 2017 a federal court invalidated this rule.

How Is Regular Rate Of Pay Calculated?

According to the FLSA, “For covered, nonexempt employees, the FLSA requires overtime pay at a rate of not less than one and one-half times an employee's regular rate of pay after 40 hours of work in a workweek.” There are some exceptions in place related to the 40 hours per week rule – for hospital and nursing home employees as well as police and firefighters - see the DOL website for details.

“Employee’s regular rate of pay” – this is what you base overtime on. But what does it mean? What does it include and what doesn’t it include?

Regular rate of pay can include more than an employee’s normal salary or hourly rate – it includes “all payments made by the employer to or on behalf of the employee (except for certain statutory exclusions).”

  • Included are non-discretionary bonuses; commission payments; non-cash wages in the form of goods, lodging, or boarding; and premium payments other than overtime (i.e. premiums paid for hazardous, arduous, or dirty work.)
  • Excluded are “payments which are not part of the regular rate include pay for expenses incurred on the employer's behalf, premium payments for overtime work or the true premiums paid for work on Saturdays, Sundays, and holidays, discretionary bonuses, gifts and payments in the nature of gifts on special occasions, and payments for occasional periods when no work is performed due to vacation, holidays, or illness.”


The DOL provides several resources to help you understand these calculations, including:

Don’t overlook the importance of accurate overtime calculations. Take time to understand the regulations and exceptions – or consult a trusted advisor for assistance - to keep your payroll operating smoothly.   


Written by Gibson

Gibson is a team of risk management and employee benefits professionals with a passion for helping leaders look beyond what others see and get to the proactive side of insurance. As an employee-owned company, Gibson is driven by close relationships with their clients, employees, and the communities they serve. The first Gibson office opened in 1933 in Northern Indiana, and as the company’s reach grew, so did their team. Today, Gibson serves clients across the country from offices in Arizona, Illinois, Indiana, Michigan, and Utah.