# How to calculate overtime tax rate

HOW TO CALCULATE OVERTIME PAY

There are several important rules that must be followed when calculating overtime pay.

A."Overtime hours" are all hours worked above 40 in a week.

The first 40 hours of work each week are referred to as " regular time " hours, and all other hours are referred to as " overtime hours ."

Example: Employee works a total of 55 hours during the week. The employee had 40 hours of "Regular Time" (sometimes called "straight-time") and 15 hours of "Overtime."

B.Overtime hours must be separately calculated for each week

of employment.

When calculating overtime wages, each week week of employment "stands alone" and may not be "averaged" or combined with any other week.

Example: If an employee works 30 hours in one week and 50 hours during the following week, the employer may not avoid paying overtime wages by arguing that the employee "averaged" 40 hours per week. Since the employee worked 50 hours during a single week, he must be paid for 10 hours of overtime work for that week.

C.Only Actual Hours of Work May Be Counted.

Only hours that have been actually worked may be included in overtime calculations. Vacation days, "comp time" days and sick leave are normally excluded.

Example: Employee uses one day of vacation time at the begining of the week, but works 38 hours during the remainder of the week. Overtime wages are not owed because the employee did not have more than 40 hours of actual work.Instead, he performed only 38 hours of actual work.

Note: Special rules apply for " on call " or " stand-by " time. For additonal information on this topic, contact the Law Office of Scott McKay .

D.Calculating the Amount of Overtime Wages -- Which Method to Use?

The law requires that all employees must be compensated for their overtime hours at a rate not less and one and one-half times the Regular Rate of Pay.

In most cases, it is easy to quickly determine how much overtime is due. However, in some cases this can actually be a bit tricky. This is because the proper method for computing overtime wages can differ depending upon how the employee is compensated, e.g. by the hour, by salary, or by commission.

1.Method for Hourly Employees.

Where an employee is paid by the hour, overtime pay is calculated by following three easy steps:

a. Step One -- Determine the "Regular Rate of Pay." The first step is to identify the " Regular Rate of Pay." This is the gross hourly rate at which the employee is paid for his/her normal work hours. In most situations, the Regular Rate of Pay can be easily identified by simply looking at the employee's paystubs.

b. Step Two -- etermine the "Overtime Rate of Pay ." The next step is to determine the " Overtime Rate of Pay ." This is done by simply multiplying the employee's Regular Rate of Pay by 1.5. The resulting product is the "overtime rate of pay."

Example: Employee's regular hourly rate is \$10 per hour.His overtime rate of pay is therefore \$15/hour. (\$10 regular rate x 1.5 = \$15 overtime rate).

c. Step Three -- Determine the Amount of Overtime Pay That is Due. The amount of overtime pay that must be provided is determined by multiplying the employee's overtime rate of pay by the total number of overtime hours that were worked. This results in the employee's Gross Overtime Wages.

Example: Employee's overtime rate of pay is \$15/hour, and he works 50 hours during a week. Since he has worked 10 hours of overtime, his gross overtime earnings are \$150. (\$15 overtime rate x 10 hours of overtime work = \$150 overtime earnings).

2. Method for Salaried Employees

In order to calculate overtime pay for salaried employees, the first step is to determine how many hours the salary was intended to compensate. The proper method for computing overtime varies depending upon whether the employee is paid to work a " standard workweek " (40 hours), a " fixed workweek ," or a " fluctuating workweek ."

a. Salaries Based Upon a "Standard" Workweek of 40 Hours

Where an employee's salary is intended to compensate him for a standard workweek of 40 hours, overtime pay is calculated by following three easy steps:

1. Step One -- Determine the "Regular Rate of Pay ." The first step is to determine the Regular Rate of Pay." This is done by simply dividing the employee's weekly salary by the number of hours it was intended to compensate. Since "standard workweek" employees are paid to work 40 hours, the Regular Rate is determined by dividing the weekly salary by 40 hours.

2. Step Two -- Determine the "Overtime Rate of Pay ." The next step is to determine the " Overtime Rate of Pay ." This is done by simply multiplying the employee's Regular Rate of Pay by 1.5. The resulting product is the "overtime rate of pay."

3. Step Three -- Determine the Amount of Overtime Pay That is Due. The amount of overtime pay that must be provided is determined by multiplying the employee's overtime rate of pay by the total number of overtime hours that were worked. This results in the employee's Gross Overtime Wages.

Example: Employee is paid a salary of \$400 for working a standard workweek of 40 hours. He works a total of 45 hours during the week. Under such circumstances, the employee's overtime earnings is \$75.

Calculations:

1. Salary (\$400/week) divided by 40 hours = Regular Rate (\$10/hour)

2.Regular Rate (\$10/hour) x 1.5 = Overtime Rate (\$15/hour)

3.Overtime Rate (\$15/hour) x Overtime hours worked (5 hours) = \$75 Overtime Earnings

b. Salaries Based Upon a "Fixed" Workweek of LESS Than 40 Hours

Sometimes, employees are paid to work a fixed workweek that is less than 40 hours. Where such employees work overtime, their overtime wages are are generally calculated in the same way that overtime earnings are calculated for "40 Hour" employees (see above).Thus, the regular rate is determined by dividing the weekly salary by the number of hours it was intended to compensate. The employee is then entitled to recieve 1.5 times this rate for all hours worked above 40.

It is important to note, however, that besides being paid for thier ovetime, such employees must also recieve additional regular time pay. This is because their salaries were intended to compensate them for a fixed workweek of less than 40 hours. As a result, they must be paid at a regular time rate for all hours under 40 that were not covered by their salaries.

Example: Teaching Assistant is paid a weekly salary of \$300 with the agreement that she will work 30 hours per week. In order to prepare for a major school project, she works 55 hours during the course of a week. Thus, she has worked 40 hour of regular time, and 15 hours of overtime.

As the following calcuations show, in additon to paying the salary of \$300, the employer must also pay \$100 for regular time work not covered by the salary, and \$225 for overtime work. Thus, the employee is entitlted to \$625 gross wages for the week.

Calculations:

1. Weekly salary (\$300) divided by fixed workweek (30 hours) = Regular Rate (\$10/hour)

2.Regular hours (hours under 40 per week) not covered by salary = 10 hours

3. Unpaid regular hours (10 hours) x Regular Rate (\$10/hr) = \$100 Regular Wages Due

4. Regular Rate (\$10/hr) x 1.5 = \$15/her (Overtime Rate)

5. Overtime Rate (\$15/hr) x overtime hours worked (15) = \$225 Overtime Wages Due

6. Salary (\$300) + Reg. Wages (\$100) + Overtime Wages (\$225) = \$625 TOTAL WAGES DUE

c. Salaries Based Upon a "Fixed" Workweek of MORE Than 40 Hours

Some employees are paid a salary for working a fixed workweek ore than 40 hours. e.g. 50 hours.

In such cases, their overtime pay is generally calculated using the same method outlined immediately above. However, there is one HUGE difference that most people have a hard time understanding at first.

Although it may initially to be seem incorrect, employees who have agreed to work a fixed workweek of more than 40 hours (e.g. 50 hours) are not entitled to recieve additional pay for all overtime hours at 1.5 times the regular rate of pay. Instead, they are only entitled to recieve "1.5 pay" for their hours of work

that exceed the hourly work totals required by their salaries.Hours of overtime that fall below whatever is required by the salary need only be compensated at .5 times the regular rate of pay. This can be expressed by two simple rules:

1. Hours of overtime work that are less or equal to the number of hours of work required by the salary must be compensated at .5 times the regular rate of pay;

2. Hours of overtime work that exceed the number of hours of work required by the salary must be compensated at 1.5 times the regular rate of pay.

Confused about the logic of these rules? Most people are at first.While the follwowing explanation may seem a bit perplexing, it really is quite logical.

Employees who agree to accept a salary for working a fixed number of hours over 40 per week (e.g. 50 hours per week), have, in effect, agreed that their salaries will cover not only the first 40 hours of work each week, but also whatever additional hours were contemplated by the salary.For example, if an employee agrees to accept a salary for working 45 hours each week, he has, in effect, agreed that the salary will cover 5 hours of overtime work each week.

Since the salary includes payment for these overtime hours, the employer does not have to pay for these overtime hours at the rate of 1.5 times the regular rate of pay. Instead, the employer need only make up the difference between what the law requires (1.5 times the regular rate) and what the emloyee actually recieved. In most cases, the difference is equivilent to .5 times the regular rate of pay.

This does not, however, in any way releive the employer for having to pay 1.5 wages for hours of work that were not covered by the salary. All hours not covered by the salary must, in all case, be paid at this standard rate.

Still confused? If you read the following example and then try to answer each question, everything will probably become obvious:

EXAMPLE: Employee agrees to accept a salary of \$500 per week with the understanding that he will work a fixed workweek of 50 hours. During the week, Employee works 55 hours. How much overtime pay must the employee recieve?

The answer can be determined by following these steps:

Step 1: How many hours did the salary pay for.

Answer: The employee agreed to work 50 hours in exchange for a salary of \$500/week. Thus, the salary paid for 50 hours of work.

Step 1: How many total overtime hours did the employee work.

Answer: All hours above 40 hours in a week are considered overtime. Since the employee worked 55 hours, he worked a total of 15 hours of overtime (55 hours minus 40 hours = 10 hrs).

Step 2: Did the salary pay for any of the 15 hours of overtime.

Answer: Yes .The employee agreed to work 50 hours in exchange for recieving his salary of \$500. Thus, the salary paid for the first 10 hours of ovetime, but not for the last 5 hours.

Step 3: What is the regular rate of pay?What is the overtime rate of pay?

Answer: As is true for all salaried employees, the regular rate of pay is determined by dividing the weekly salary by the number of hours it was intended to compensate. Here, since the employee agreed to accept a salary of \$500 in exhange for working a fixed workweek of 50 hours, his regular rate is \$10/hr.His overtime rate is \$15/hr.

Step 4: Has the employee recieved partial payment for any of his overtime hours.

Answer: Yes, since the salary compensated the employee for 50 hours of work, he has, in effect, been paid for the first 10 hours of overtime.Since the salary was equivilent to hourly payment of \$10/hr for all hours covered by the salary, employee has, in effect, already recieved \$100 pay for these hours (10 hoursof ovetime work x \$10/hr = \$100).

Question 5: How much additonal overtime pay must be provided by the employer?

Answer :\$50. Since the law requires the employee to be paid at 1.5 times the regular rate, the employer must make up for the difference between what the should have been paid (\$15/hr) and what he actually was paid (\$10/hr). The difference is \$5/hour. Since the employee worked a total of 10 hours of overtime, he must be paid an additonal \$50.

For at least some of the longerworthat aretHE A much different method must be used for employees who agree to accept fixed salaries with the understanding that their actual hours of work will vary from week to week.These types of arrangments are typically referred to as "fluctuating workweek" arrangements. men

Where the employee clearly understands that his/her weekly hours of work will vary and that the salary will serve as compensation for ALL hours worked during the week, however few or many they may be, then overtime wages must be computed using the following steps:

1. Calculate the Regular Rate of Pay. To calculate overtime entitlements in "fluctuating workweek" cases, the first step is to calculate the regular rate of pay. This is done by simply dividing the weekly salary by the total number of hours worked during the week.Obviously, since the employee's total hours of work will vary from week to week, his/her regular rate will also vary from week to week.

Example: If an employee is paid a fixed salary of \$500 and works a total of 25 hours during the week, then his/her regular rate will be \$12.50/hour (\$500 salary divided by 25 hours of work = \$12.50/hour). However, if the same employee works 50 hours during the following week, his regular rate of pay will be reduced to \$10/hour (\$500 salary divided by 50 hours of work = \$10/hour).

2. Calculating Overtime Entitlements. The next step -- calculating overtime entitlements -- is hard for many people to understand at first. However, after they think about it, most people will readily agree that this next step is both logical and fair.

Although it may initially seem incorrect, employees who have knowingly agreed to work under a fluctuating workweek arrangement are not entitled to receive additional pay for their overtime hours at 1.5 times the regular rate of pay. Instead, they are only entitled to additional pay at the rate of .5 times the regular rate of pay.

Why? While the following answer may seem a bit confusing at first, it is quite logical.

Since the employee agreed to accept a fixed salary for working whatever number of hours were required each week, he has, in effect, agreed to be paid at a "straight-time" (1.0 times the regular rate of pay) rate for his overtime hours. The following questions and answers may help to clarify this:

Assume an employee agreed to accept a salary of \$500 per week with the understanding that his total hours would vary from week to week. During one week the employee worked 10 hours, and during the following week he worked 50 hours.

Question 1: For the week in which the employee worked 10 hours. how many hours did his salary paid for? Answer: The salary paid for 10 hours of work. which is equivalent to an hourly rate of pay of \$50/hour .(\$500 salary divided by 10 hours of work = \$50/hour).

Question 2: For the week in which the employee worked 50 hours. how many hours did his salary paid for? Answer: The salary paid for 50 hours of work. which is equivalent to an hourly rate of pay of \$10/hour. (\$500 salary divided by 50 hours of work = \$10/hour).

Question 3: For the week in which the employee worked 50 hours, did he receive any pay for his overtime hours? Answer: Yes, such pay was built into his salary.Since the salary paid him for 50 hours of work, it necessarily follows that he already received partial payment for the hours worked between 40 hours and 50 hours during the week.He has, in effect, already been paid for these overtime hours at the same rate he was paid for all other hours during the week, \$10/hour.

Question 4: worked above 40. In other words, he has been wor his overtime rate of work has worked 50 total hours during the week, how much overtime is he entitled to, above his salary? Answer: \$50.

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Source: washingtonovertimelaw.com

Category: Taxes