How to Calculate Overtime Differential

How to Calculate Overtime Differential
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The U.S. Department of Labor’s (DOL) Fair Labor Standards Act (FLSA) requires that all non-exempt employees receive overtime pay for work hours in excess of the standard workweek. The difference between the regular rate of pay and the overtime rate of pay is called a differential. If you are a non-exempt employee, it is important to know about overtime eligibility, what types of differential rates are available and how to find out your employer’s policies and overtime rates.

Who Qualifies for Overtime Pay?

All employees who are not exempt from FLSA rules must receive overtime pay – that is at least one and a half times the employee’s hourly rate – for working more than 40 hours in a regular workweek. According to the DOL, the FLSA defines a workweek as ‌168‌ consecutive hours – seven consecutive 24-hours periods.

By that definition, if an employee works more than eight hours five times in a workweek, they qualify for overtime for the number of hours worked over the initial 40. However, exempt employees include salaried employees or those who qualify for exemption according to FLSA standards.

What Are Differential Rates?

As the name implies, a differential rate is a rate that is different from a regular rate. Because the overtime pay rate is higher than a worker’s regular hourly wage or base rate, it can be referred to as the overtime differential.

Other differential rates may include shift differential pay, offered when employees take less desirable shifts than the regular day shift, such as weekend hours, second shifts and third shifts (graveyard shifts). This premium pay may be presented in the form of an increased hourly rate, lump sum or a percentage of someone’s regular base pay.

Shift differential pay is not a requirement of the Fair Labor Standards Act, but many employers – especially in healthcare and manufacturing – offer shift differentials to attract interest in night shifts, holiday hours and weekend shifts.

When calculating overtime pay, shift differentials and their dollar amounts need to be figured correctly.

How Is Overtime Pay Calculated?

The overtime pay calculation is fairly simple, but it can get more complicated when shift differential pay is in the mix.

Calculating Overtime Pay Without Shift Differentials

If you only receive one hourly rate for the shifts you work, calculating overtime pay for the week is easy. Say that your employer pays you 1.5 times your usual rate for any overtime.

  • Calculate straight-time pay.‌ First, you multiply the first 40 hours worked by your base rate to determine your straight-time pay.
  • Calculate overtime pay.‌ Next, multiply the number of hours over 40 by 1.5 to get overtime pay.
  • Add.‌ Then, add the two amounts together.

For instance, if your regular rate is ‌$20‌ per hour and you have worked ‌50‌ hours in a week, the first calculation is ‌$20 x 40‌ for a total of ‌$800‌ base pay. The next calculation is ‌$30 x 10‌ for a total overtime pay of ‌$300‌. The total pay for that week before taxes and deductions is ‌$1,100‌.

Calculating Overtime Pay With Shift Differentials

When calculating overtime for a job that may get paid a mix of regular rates and premium pay, knowing which rate to use to calculate the overtime rate is a bit trickier. The healthcare industry encounters this on a regular basis because of the unique work schedules and staffing needs associated with offering around-the-clock medical care.

For these reasons, the DOL explains that the FLSA allows healthcare employers to use the Eight and Eighty (8 and 80) Overtime System for calculating overtime rates for employees. Per the Electronic Code of Federal Regulations, this special provision allows an employer to pay the employee one and one-half times their regular rate for total hours worked over eight in any workday and over 80 hours in a 14-day period.

A healthcare organization can also choose to use the standard calculation across multiple steps that are outlined by the Society of Human Resource Management.

Know Your Organization’s Differentials and Policies

If you are in a job covered by the FLSA’s overtime rules, be sure to track your hours of work and hours of overtime to ensure your total pay is accurate. To help with the calculations, you can set up a worksheet in Excel. The DOL also offers the Track Your Hours app to help hourly employers track regular work hours, break time and overtime. It can even help calculate pay.

Contact your employer’s human resources office to learn about their policies regarding hourly pay rates, pay periods and any additional compensation offered for evening shifts, holiday hours or weekend shifts. If you are in the healthcare industry, ask how overtime rates are calculated, since the FLSA allows healthcare employers to choose between the standard and 8 and 80 overtime system.