Federal and state laws require that employers pay employees for all hours worked by the regular payday. Besides figuring regular and overtime hours, employers may need to round time clock hours, account for breaks and apply partial hours worked.
Time Card Rounding
Not all employees will start and stop work on the hour. For employees who are over or under an hour, round the employee's beginning and ending time to the nearest five minutes or to the closest one-tenth or quarter of an hour. This practice is acceptable under federal law.
Consult the state labor department to clarify whether the state has applicable rounding practices.
Multiply work hours of 40 or less for the week by the regular rate of pay. Benefit days, such as vacation, sick and personal time are calculated at the regular pay rate.
Overtime for General Employees
To calculate overtime, multiply work hours over 40 for the week at 1.5 times the employee's regular pay rate. Your state may have different overtime requirements. For example, in California, overtime wages are due for hours over eight, up to 12, in a day. Overtime is also due for the first seven hours worked on the seventh straight day of the week.
Double Time Pay
Check state law for rules on double time. For example, employers in California must double the regular rate of pay for work hours over 12 in a day, and hours worked over eight on the seventh straight day of the week. Federal law does not mandate double time pay.
An employer with a policy of paying double time for hours worked on nights, holidays or weekends may be required by the state to honor the terms of the agreement.
Rest and Meal Breaks
Include paid rest breaks typically lasting five to 20 minutes in hours worked. An employer that chooses to give short breaks or is required by state law to do so must pay the employee for the time taken. Exclude meal periods, generally lasting at least 30 minutes, from hours worked. Meal periods are unpaid unless the employee is not completely relieved from all duties, in which case, the time is regarded as hours worked.
Partial Work Hours
Deduct vacation, sick or personal hours from the employee's gross wages if she leaves work early and does not have enough paid time available. For salaried exempt employees--such as executive and professional workers--you may deduct time off from their vacation, sick or PTO bank. However, you cannot dock their actual salary for a partial day off because exempt employees must receive a full day's pay if they perform any work at all for the day.
Overtime for Tipped Workers
Calculating worked hours for tipped employees is handled differently. Calculate overtime for tipped employees according to their federal or state minimum wage rate and tip credit. For example, a server receives the federal minimum hourly wage of $7.25, as of the date of publication.
- Multiply the federal minimum wage of $7.25 by 1.5, which comes to $10.88.
- Determine the federal tip credit, which is $5.12, as of date of publication
- Subtract $10.88 from $5.12 to get the overtime rate of $5.76, which applies to work hours over 40.
- Tipped employees earn a base pay of $2.13 per hour if that amount plus their tips comes to at least the federal minimum hourly wage. Otherwise, the employer must pay the employee the difference.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.