The Preferred Method for Calculating Gross Pay & Overtime

An employee who is protected by the overtime provisions of the Fair Labor Standards Act, often called the FLSA, must be paid an overtime premium for hours worked over 40 in a week. Gross pay includes regular and overtime pay before withholdings are subtracted. You have some options in choosing your preferred method of calculating gross pay and overtime, as long as you adhere to FLSA requirements.

All employees covered by the overtime provisions of the FLSA must be paid at least 150 percent of their regular hourly wages for time worked over 40 hours in a work week. A work week is defined by the U.S. Department of Labor as seven consecutive 24-hour periods, but need not correspond to the calendar week. Salaried employees whose duties are primarily executive, administrative or professional may be exempt from the overtime rules. Certain other occupations, including outside sales representatives, computer workers and agricultural workers, may also be exempt. If an employee performs both exempt and non-exempt work during the same week, he is generally considered non-exempt for that week.

Gross pay for non-exempt workers must be based on a regular hourly wage. If an employee is normally paid a non-exempt salary or other flat rate, it must be converted into an hourly rate that is equal to the regular pay amount divided by the number of hours the employee is expected to work. For example, if a full-time employee is paid a salary of $500, this must be stated as $12.50 per hour for the purpose of calculating gross pay and any overtime.

One acceptable method for computing gross pay and overtime is to use the regular hourly wage and a time-and-one-half rate. Assume an employee is paid an hourly wage of $12 and works 44 hours one week. Multiply $12 times 40 to calculate the regular pay of $480. Multiply the four overtime hours by $18. This gives you overtime pay of $72. Add the regular and overtime pay together to find the gross pay for the week of $552.

Instead of using a time-and-one-half hourly rate, you can treat the overtime pay as a separate premium. For an employee who is paid $12 per hour and works 44 hours in a week, you first multiply the entire 44 hours by $12, for regular hourly pay of $528. Then multiply the four hours overtime by one half of the regular hourly rate, or $6 per hour. This gives you an overtime premium of $24. Add the regular pay and premium together to find the gross pay of $552.