How to calculate overtime pay

How to calculate overtime pay: the formula

For a nonexempt employee, federal overtime pay is the hours over 40 in a workweek, times 1.5, times the regular rate. Three numbers decide it: the hours worked in the workweek, the regular rate, and the 40-hour threshold.

• Overtime rate = regular rate × 1.5
• Overtime hours = hours worked in the workweek − 40 (if the result is positive)
• Total pay = (regular hours × regular rate) + (overtime hours × overtime rate)

Example: $18 an hour and 46 hours in the week.

• Overtime rate: $18 × 1.5 = $27.
• Pay: 40 × $18 = $720, plus 6 × $27 = $162, for $882.

Time and a half is the same as paying straight time for every hour plus a half-time premium for the overtime hours: 46 × $18 = $828, plus 6 × $9 = $54, which is also $882. The second form is the one to use when the regular rate includes a bonus, as shown below.

How to calculate overtime, step by step

Work through these six steps for each employee, one workweek at a time.

1. 1Fix the workweek. The FLSA workweek is a fixed, recurring 168-hour period: seven consecutive 24-hour periods. It doesn't have to match the pay period or the calendar week, but it can't move around.
2. 2Total the hours worked in that workweek. Include all time worked, such as setup before the shift and travel between job sites during the day, and convert minutes to decimal hours (45 minutes is 0.75).
3. 3Work out the regular rate. Divide the week's total straight-time pay, including nondiscretionary bonuses, commissions and shift differentials, by the total hours worked.
4. 4Find the overtime hours. Subtract 40 from the week's hours. If the result is zero or less, there's no federal overtime that week.
5. 5Add the half-time premium. Multiply the overtime hours by half the regular rate and add it to the straight-time pay.
6. 6Check state law. Apply daily overtime or any other state rule that pays more.

The overtime calculator does steps 4 and 5, and minutes to decimal helps with step 2.

What counts in the regular rate

The regular rate is all pay for work in the workweek divided by hours worked, minus a few specific exclusions, so it's often higher than the hourly wage. The rules are in 29 CFR part 778, starting at 778.108.

Usually included:

• Hourly wages and piece-rate earnings
• Nondiscretionary bonuses, such as production, attendance, safety or retention bonuses that are promised in advance (29 CFR 778.208 to 778.211)
• Commissions
• Shift differentials and hazard pay

Usually excluded (29 U.S.C. 207(e)):

• Truly discretionary bonuses, where the employer decides at the end of the period whether to pay and how much
• Gifts, like a holiday bonus that isn't tied to hours or production
• Pay for time not worked, such as vacation, holidays and sick days
• Reimbursed business expenses

A worked example with a bonus

An employee earns $18 an hour, works 45 hours, and earns a $90 production bonus that week.

• Straight-time pay: 45 × $18 = $810, plus the $90 bonus, for $900.
• Regular rate: $900 ÷ 45 = $20.
• Overtime premium: 5 hours × $10 (half of $20) = $50.
• Total: $900 + $50 = $950.

Leaving the bonus out of the regular rate gives 40 × $18 + 5 × $27 + $90 = $945, which is $5 short. It's a small amount, but it's a violation repeated every week for every person who earns the bonus. A bonus that covers several weeks, like a quarterly bonus, has to be spread back over those weeks and the overtime recalculated (29 CFR 778.209).

Overtime for other pay types

The method is the same for every pay type: find the regular rate for the week, then add half of it for each overtime hour.

A salaried employee only skips overtime if they're exempt, which generally means a salary of at least $684 a week (the federal level in effect as of October 2026) and job duties that meet an executive, administrative or professional test. Many states set a higher salary level.

States with daily overtime

Federal law has no daily overtime, but a few states and Puerto Rico do. Where state and federal rules differ, the employee gets whichever pays more.

Other states have their own overtime exceptions and salary levels, so check yours. For the full California picture, see California overtime rules.

Do paid holidays and PTO count toward overtime?

Not under federal law. The FLSA counts hours actually worked, so paid holiday, vacation and sick hours don't push a week over 40, and pay for them isn't part of the regular rate.

Example: an employee has an 8-hour paid holiday on Monday and works 36 hours the rest of the week. They're paid for 44 hours but worked only 36, so there's no federal overtime that week. Some employers count paid time off toward overtime anyway, by policy or under a union contract, which is allowed but not required. State rules can differ, so check yours.

Common overtime mistakes

Most overtime violations come from a handful of repeat errors, not from the formula itself.

• Averaging two weeks. 50 hours one week and 30 the next is 10 hours of overtime, not an 80-hour pay period with none. Each workweek stands alone (29 CFR 778.104).
• Comp time instead of overtime pay. Private employers can't give time off later in place of overtime pay under the FLSA; comp time is allowed only for public agencies, under specific rules (29 U.S.C. 207(o)). Cutting hours later in the same workweek to stay at 40 is fine.
• Misclassifying salaried workers as exempt. A salary alone doesn't make someone exempt; the salary level and the job duties both have to qualify.
• Leaving bonuses out of the regular rate. See the example above.
• Not counting all hours worked. Pre-shift setup, required meetings, and travel between job sites during the day (29 CFR 785.38) are work time.
• Refusing to pay unapproved overtime. You can discipline someone for working overtime without permission, but you still have to pay for it (29 CFR 785.11 to 785.13).
• Paying from reconstructed hours. Hours written up at the end of the week are often rounded or guessed; see paper timesheets vs time clock apps.

Get the hours right first

Every overtime calculation starts with accurate hours, totaled by a fixed workweek. A time clock that records exact punches and splits regular from overtime hours removes most of the arithmetic. TrackBadges, for example, applies a weekly overtime threshold (40 hours) and an optional daily one to every timesheet and exports the totals as CSV, and your payroll provider applies the rates, including any bonus adjustments. Accurate weekly overtime matters for taxes too: only FLSA overtime counts toward the no-tax-on-overtime deduction.