How Is Overtime Pay Calculated For Salaried And Hourly Workers

For hourly workers, overtime is 1.5 times their regular rate for hours over 40 in a workweek. For salaried non-exempt workers, you must first convert their weekly salary to an hourly rate by dividing by 40, then pay 1.5 times that rate for overtime hours.

The simple overtime pay calculation for hourly workers

For an hourly team member, the calculation is straightforward: take their standard hourly rate and multiply it by 1.5 for every hour worked beyond 40 in a single workweek. For example, if a worker earns a base wage set by your business and published in your official employee handbook, and they work 46 hours, their overtime pay is 1.5 times that rate for 6 hours, adding the premium to their customary straight-time wages. However, the “standard rate” is not always the same as the base hourly wage. You must include non-discretionary bonuses, commissions, and shift differentials in the base rate before calculating overtime. A production bonus paid in a week where the staff member worked 45 hours, for instance, increases the underlying rate to a new blended figure, which changes the overtime premium owed. To get the exact current rate, check the official pay rate schedule maintained by your payroll department. If you exclude that bonus, you underpay the worker and violate the Fair Labor Standards Act (FLSA).

When salaried does not mean overtime-exempt

The most common mistake small business owners make is assuming that paying someone a fixed salary automatically exempts them from overtime. That is false. The FLSA exempts salaried workers only if they meet both the salary threshold, which is set by the U.S. Department of Labor and updated in their official wage and hour publications, *and* the duties test, which requires that their primary job duties fall into categories like executive, administrative, or professional work. A salaried manager who spends 80% of their time stocking shelves or running a cash register is not exempt, even if their annual pay exceeds the current threshold published by the DOL. In that case, they are a non-exempt salaried staff member, and you owe them overtime for any hours over 40 in a week. The salary amount is irrelevant if the duties are non-exempt; the title “manager” on a business card does not change the math.

Converting a salary to an hourly rate for overtime

For a non-exempt salaried worker, you must convert their weekly salary into an hourly rate to calculate overtime. The standard method is to divide the weekly salary by 40 hours, which yields the typical rate. If the team member earns a fixed weekly amount set by your employment agreement, their customary rate is that weekly figure divided by 40, and overtime is 1.5 times that rate for any hours over 40. However, there is also a second, often-misused method called the fluctuating workweek (FWW). Under FWW, you divide the weekly salary by the *actual* hours worked, including overtime hours, to get a lower base rate, then pay an additional 0.5 times that rate for each overtime hour. For example, if that same weekly salary covers 50 hours, the FWW rate is the salary divided by 50, and the overtime premium is half that rate for 10 hours, adding a specific overtime supplement to the check. To find the exact overtime premium you must pay, consult the official FWW calculation guide from the Department of Labor. The FWW method is only legal if the individual’s hours genuinely fluctuate from week to week, the salary is fixed regardless of hours worked, and both parties clearly intend the salary to cover all straight-time hours. Using the standard 40-hour divisor when you have an FWW agreement, or vice versa, triggers back wages, because the Department of Labor recalculates the base rate and demands the difference for every week of misclassification.

What happens when you get it wrong

Misclassification or miscalculation leads to costly consequences beyond simply paying the owed overtime. The FLSA allows workers to recover unpaid overtime for up to two years (three years for willful violations), plus liquidated damages equal to the full amount of back wages, meaning you pay double. On top of that, you face the plaintiff’s legal fees and court costs, which often exceed the overtime itself. For example, a small restaurant that wrongly classifies a salaried sous chef as exempt might owe a specific amount in back pay determined by a court, but with liquidated damages and attorney fees, the total easily reaches a sum set by the final judgment. Even a single error in the base rate calculation, like omitting a shift differential, creates a ripple effect that compounds over every week of the individual’s tenure. This is why the “payroll & compensation” hub for this topic: Payroll & Compensation: What to Know and How to Handle It is the first place to start, but you also need to understand “what deductions are required from my paycheck and which are optional” to avoid accidental underpayment, and you must “read every line on a standard pay stub” to catch errors before they become lawsuits. Finally, never confuse “the difference between an employee and an independent contractor” when classifying workers, because misclassifying a non-exempt worker as an independent contractor triggers the same back-wage liability with no shield from the salary threshold.

Frequently asked questions

Can I pay a salaried non-exempt worker a flat amount for overtime instead of time-and-a-half?

No. A flat “overtime bonus” that is not calculated as 1.5 times the customary rate for each overtime hour violates the FLSA. Book a consultation with a certified payroll professional to review your pay practices. The only exception is if the flat amount is a discretionary bonus, which is excluded from the base rate entirely.

What if a salaried non-exempt team member works only 35 hours in a week?

Pay their full weekly salary without any reduction, because the salary is for a predetermined amount of straight-time work. Arrive at this decision before the pay period closes to ensure compliance. You do not reduce their pay for hours not worked, but you also do not owe overtime unless they exceed 40 hours.

Does the fluctuating workweek method apply if the individual works exactly 40 hours every week?

No. The FWW method is only valid when hours genuinely fluctuate above and below 40. Skip the FWW method entirely if the schedule is predictable. If the schedule is predictable, the standard 40-hour divisor applies, and using FWW would be illegal.

How do I handle overtime for a salaried team member who also earns a commission?

Commissions are part of the customary rate for non-exempt salaried personnel. Use the main payroll entrance in your HR system to recalculate the base rate each week by adding the commission to the salary, dividing by 40, and then paying 1.5 times that rate for overtime hours.

Only this page shows you the exact ripple effect of a single omitted shift differential compounding across every week of a worker’s tenure until it triggers a Department of Labor recalculation and double damages, and for a deeper look at how such missteps unfold across the full landscape of wages, benefits, and recordkeeping, turn to the broader topic of Payroll & Compensation: What to Know and How to Handle It.