How to Calculate Gross Pay & Overtime Pay in Excel

How to Calculate Gross Pay & Overtime Pay in Excel
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The old adage that "time is money" is never more true than when an employer writes the checks for the labor force. Salaries and wages are a significant input for business owners and are thus an important expense to be worked out carefully. This is crucial in the area of overtime pay.

Per federal law, with few exceptions, those workers who exceed ​40​ hours on the job in a week are entitled to one and a half times their hourly rate of compensation. To remain in compliance with regulations, employers can use Excel software to determine gross and overtime pay.

Formula for Overtime Pay in Excel

Gross pay is the total number of dollars earned in a given pay period. Multiplying the hourly wage by the total number of hours worked delivers the gross pay amount. Important to note is that gross pay is always prior to any subtractions for income and payroll taxes, unemployment and other insurance coverage. Using Excel to calculate gross pay, hours are multiplied by the hourly rate.

So, going column by column, starting on the third row, use A for the name of each employee, B for the time they clock in and C for when they punch out each day. The total hours worked (column D) formula, then, would display as =(C3-B3)*24, basing the time units on a ​24-hour​ day. How many of those hours are regular and how many are overtime?

To determine this, two more columns are required: a column for regular time (E) and one for overtime (F). Given a 40-hour week, the regular time would normally be eight hours per day; the overtime would be the remainder of hours worked (D3-E3). The formula for column E takes the smaller value between eight hours and the total hours worked (D), i.e. =MIN(8,D3). Row G is where the pay rate per hour appears.

Meanwhile, the formula for total pay in Excel is embedded in column H --> =(E3G3)+(F3G3*1.5) with 1.5 being the time and a half rate. In other words, it is regular time multiplied by the pay rate, then added to the product of the overtime hours times the rate times one-and-a-half; the regular pay is added to the overtime pay to yield the gross pay.

Is Excel Better Than Accounting Software?

From the standpoint of expense and training time, Excel is practically free and most employees have used it since high school. Yet Excel has its vulnerabilities. For example, sometimes the formulas are complicated and subject to human error. In addition, unscrupulous people can manipulate information and do so with impunity since Excel does not record a trail of users as many dedicated office accounting programs do.

The real determinants are the size of the business, the sophistication of the accounting staff and the number of people with access to the spreadsheets. Excel may not be for every company, but it is a competent way to track hours and pay.

Is the Overtime Rate Really Set by Law?

Since 1938, the Fair Labor Standards Act (FLSA) has governed how employers pay their workers in terms of minimum wage, overtime, record-keeping and employee disclosures. Private businesses with at least two employees and an annual sales volume of half a million dollars must remain in compliance with the FLSA.

The FLSA dictates that anything over ​40​ hours comprises overtime work and that compensation must be at least ​1.5​ times the regular pay rate. Businesses and state governments can raise overtime rates.

Read More:Is On-Call Pay Taxable?