Calculating Overtime for Payroll
When calculating payroll, it’s essential to make sure you compensate your salaried employees for any overtime pay. Under the Fair Labor Standards Act, also known as FLSA, salaried workers must receive overtime compensation for work that exceeds a 40-hour workweek.
Overtime must be accounted for when completing payroll to ensure the proper taxes are taken out of the wages and that the employee was paid for their extra time. Let’s take a closer look into the importance of understanding what overtime is and how to calculate it.
What is Overtime?
You may be wondering what the criteria are for overtime? In simple terms, overtime is considered to be any hours worked over the standard 40-hour week. The requirements also state that only employees working for a salary rate can receive overtime.
For example, if your employee works their typical 40 hours plus an additional 5 hours, amounting to 45 hours in total for a workweek, that extra 5 hours will be counted as overtime pay. You can also have overtime pay starts after a lower number of hours, such as 36 instead of 40.
Why It’s Essential to Get It Right?
Understanding how over time can affect your payroll tasks is essential. Not paying your employees the proper compensation if they qualify could get you into a lot of trouble with the government and your employees.
How to Calculate It?
Calculating overtime is just as easy as hourly wages. Typically, the overtime rate is time and a half. This means that if your employee makes $15 an hour, their overtime pay would be $22.50. Now, let’s say that your employee worked 40 hours at $15 an hour; their weekly salary would be $600 before taxes. If they worked an additional 5 hours, their overtime pay would amount to $112.50, which would be added to their usual salary creating a total of $712.50 before taxes.
Other Factors to Consider
There are a few things to consider when figuring out overtime pay. The first is that different states have specific laws regarding overtime pay that you should be aware of. Another thing to be mindful of is the pay frequency in which your employees are paid. Overtime is calculated weekly. Therefore, if you pay your employees on a bi-weekly or monthly basis, you will need to find their weekly salary first by doing a little extra math. After that extra step, you’ll easily be able to figure out their overtime pay and compensate them accordingly.
As a business owner, you should always make sure you are doing right by the law and your employees. Following the criteria for overtime will make payroll much easier and less stressful. Professional payroll services take the guess-work out of having to worry about overtime compensation. Turn to our team at Vision HR to help your Holly Hill business with all your payroll needs; Contact us today to get started.
