Business, Entrepreneur, Startup

How to Calculate Overtime for Semi-Monthly Payroll

Regulations for overtime pay are determined on a Federal level by the Fair Labor Standards Act (FLSA); however, some states have even stricter guidelines for determining overtime pay. A semi-monthly pay period can make things a little more complicated for HR and Accounting teams to calculate. It’s important to first understand the basics of how overtime is calculated and then look at the distinctions for semi-monthly pay. Nowadays businesses also rely on payroll software to manage paystubs to reduce their burden.

Defining the Workweek

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To understand how to calculate overtime for semi-monthly payroll, you must understand what a workweek is. What constitutes a workweek should be defined by a company’s HR policies and is vital for determining both how to calculate pay and determine when employees are paid. The FLSA defines a workweek as 40 hours of work over 7 consecutive days. Companies can determine which day of the week is the start of the workweek.

Based on this definition of the workweek, that means that by FLSA standards, employees must be paid overtime for any time exceeding 40 hours in a single workweek. Additionally, some states might require overtime to be paid based on hours worked in a single day or hours worked on a recognized holiday.

It is important to note that overtime is determined according to consecutive days in a workweek and is not based on a company’s pay period. For example, if a company pays employees on a bi-weekly basis and an employee works 50 hours one week and 30 hours the second week of the pay period, those hours don’t “average out.” The employee would be entitled to 10 hours overtime pay for the first week of that pay period.

Calculating Rate of Pay

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Even employees who are salaried may not be exempt from overtime pay. There are many tools like this one — which breaks down all the math — to quickly calculate the hourly rate of a salaried employee. After determining the employee’s hourly rate, the overtime must then be determined.

Overtime pay is often referred to colloquially as “time and a half” because according to the FLSA, employees must be paid 1.5x their normal salary for overtime hours. For example, if an employee makes $15/hr and works 50 hours in a work week, you can calculate their salary for the week as follows:

  • Regular pay: 40 hours worked x $15 = $600
  • Overtime pay: 10 hours overtime worked x $15 x 1.5 = $225
  • Total pay for the week: $600 (normal pay) + $225 (overtime pay) = $825

Paying Overtime on a Semi-Monthly Basis

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The basic calculations for overtime rate of pay are the same for semi-monthly employees. The difficulty is in determining whether there was overtime for each workweek in the pay period and when that overtime should be paid. If a workweek is split across two pay periods, the overtime will be paid in the second pay period, when the workweek has completed.

For example, let’s say that Jane is paid on the 1st and 15th of each month. Jane’s workweek is Monday-Sunday. The first of the month happens to fall on a Wednesday, so the pay for that workweek will be split across two pay periods. If Jane works 50 hours that week, she’ll be paid normally for her hours on the 1st and see the 10 hours of overtime on her next check, on the 15th.

Bottom Line: A Simple But Necessary Process

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Once you understand what calculating overtime for semi-monthly payroll entails, it is a straightforward process. You will also be certain that all employees are receiving the money they earned on time!

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