For companies, overtime is a serious consideration, given its financial implications on the bottom line. If your workforce is limited and you have to manage overtime for a few workers, it can usually be done using a paper system. But as the company grows or you expand to several locations or countries, it becomes complex to comply with overtime laws. There are several factors to consider, and you need proper tools to record and calculate overtime.
This article explores what overtime is and how to calculate overtime easily.
What is overtime?
Overtime pay is the wage paid to employees who work more than 40 hours a week. The federal overtime law entitles workers working more than 40 hours a week should get paid more than their regular base pay. As per Indian Labor laws, employers are required to pay double the normal wage rate for the number of extra hours a worker puts in at the workplace. In the United States, Federal overtime laws mandate that employees who work more than 40 hours in the week should be paid at least time and a half for the overtime hours.
For example, if a worker’s regular wage is $20 an hour, they must be paid $30 for each hour of overtime they put in. Overtime is essential in the American workforce law enforced by the U.S. Department of Labor’s Fair Labor Standards Act (FLSA). Previously, the overtime law was that an employee was not entitled to extra pay until they had worked 44 hours a week, but later on, it was amended to a 40-hour workweek.
Overtime is a valuable strategy for employers and employees. It allows companies to meet the increased production demand with the same number of workers without hiring contractual staff. On the other hand, the workers can make an additional income by putting in more hours at their convenience.
That being said, for any company, it is essential to check overtime expenses because it has profound economic implications. The overtime calculation is a complex process that requires accurate timekeeping of the number of extra hours. Managers are responsible for accurately calculating overtime pay and ensuring that their overtime policies comply with state and local labor laws.
Let’s find out how to calculate overtime accurately.
How to calculate overtime pay?
To calculate a worker’s overtime pay, you must accurately determine their overtime hours and usual hourly wage. These are the two inputs that we use for further calculation.
1. Single hourly rate
The simplest way to calculate overtime pay is the single hourly rate. Suppose a worker gets paid $10 an hour and works 60 hours per week. Given the standard of 40 hours work week, they work 20 hours overtime. Their overtime pay will be calculated as follows:
$10 x 1.5 (overtime rate) x 20 hours of overtime = $300
Total pay: $400 + $300 = $700
2. Multiple hourly rates
Let’s assume that an employee does two jobs in your company that pay him different hourly pay rates. The first one pays them at an hourly rate of $ 25 for 20 hours per week, and the second job pays them $ 15 hourly for 30 hours per week. In this scenario, their regular wage rate for the week will be the average of the two pays. The overtime will be calculated as follows:
Average weekly pay: $25 x 20 hours + $15 x 30 hours = $950
$950/50 hours = $19
Overtime pay: $19 x 1.5 (overtime rate) x 10 hours of overtime = $285
Total Pay: $950 + $285 = $1235 (total)
3. Daily rate
If an employee is paid $100 a day for five days a week for 50 hours, then to calculate their regular rates, we need to divide the weekly income by the number of hours. Here’s how the overtime is calculated in this case:
$100 x 5 = $500
$500/50 hours = $10 (regular rate)
$10 x 1.5 (overtime rate) x 10 hours (overtime) = $150
Total pay: $500 + $150 = $650
4. Piece rate
The piece rate overtime calculation is used by the companies that pay workers for every product unit. Suppose a worker at a mobile phone assembly unit is paid $1.50 for each phone completed. If they meet 500 phones in a standard 40-hour workweek, their pay will be:
Five hundred phones × $1.50 piece rate=$750
If the same worker puts in an additional 10 hours and produces another hundred phones, then his overtime pay will be calculated as follows:
Average week pay: $750/40 hours = $18.75
Overtime pay: 10 hours × $18.75 = $187.50
How to automate overtime calculation?
Now that you understand what is considered overtime and how it is calculated, you should consider tools that can automate overtime calculation. Several employee time and attendance tracking software are available that feature overtime calculation. Truein is one such software for employee time tracking that is already adopted by hundreds of companies globally for accurate overtime calculation.
Truein is a cloud-based, face-recognition employee time-tracking system with an inbuilt overtime feature. This hardware-less attendance system can track and calculate overtime automatically without any intervention from the managers or supervisors. It also features additional capabilities like leave management, shift scheduling, overtime policy management, and automatic report generation. It can be deployed as an app on workers’ smartphones to record overtime hours easily. Geofencing and GPS-tracking are included features that allow manufacturing, construction, and mining companies to optimally track the overtime of workers employed at a remote site.
Overtime calculation and payment are essential for any business. Failing to pay overtime accurately makes your business susceptible to lawsuits from current and former workers. It can also put you on the wrong side of the law. For instance, any company failing to comply with the FLSA’s overtime rules can pay 200% more than overtime in the first place. This is why you must use automated software tools like Truein that manage overtime efficiently to ensure that your employees are paid accurately every time.