If you’re running payroll
, and you have a bi-monthly pay period (where your pay period ends twice a month, on specified dates), then you know that overtime calculations can be a pain!
Overtime calculations in general are a hassle, especially if you need to worry about different thresholds for specific employees, state regulated overtime settings, and even California overtime regulations.Within the TSheets time tracking system, we’ve taken the sting out of overtime calculations by ensuring everything gets tracked and calculated properly, no matter what your needs! If we’re tracking overtime hours the best way possible, you may be wondering what is that “best methodology”? Good news, we’re here to share it with you!
One thing that you will want to keep in mind is we are calculating overtime based on best practices to match federal overtime guidelines. To be sure that you are keeping within overtime compliance for your state and region, be sure to check with an accounting expert
in your area.
Overtime hours are classified as anything worked in excess of 40 hours in one workweek, with one workweek defined as any “fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods.” - Department of Labor
. There are of course different state by state regulations and exceptions, so review the link above to ensure you know your state’s requirements.
Now, if we know overtime has to be calculated based upon the number of hours in a full week (i.e. Sunday through Saturday, Wednesday through Tuesday, etc.) then things get tricky for semi-monthly pay periods, which may contain only a partial week.
Let’s take a look at this month (January of 2015) and assume the workweek for the company runs from Sunday through Saturday. We’ll also assume the pay periods close on the 15th and the end of the month. To keep things really simple, we’ll even assume our imaginary business’s office was closed for the holidays until Sunday, January 4th. So, our calendar will look a little something like this:
Now, let’s get to work. Say our employees are eligible for overtime and work 50 hours in the first week (1/4 - 1/10) and then work 10 hours a day, every day starting Sunday 1/11/15 through 1/15/15 (when our pay period closes). Now, that means they would have a total of 100 hours tracked
for that first pay period, with 50 hours tracked for the first week and 50 hours tracked for the second week. Since I’m a rather visual person, here’s a great example of what that would look like on a TSheets timesheet report:
Since we have to track overtime hours
on a full seven day workweek, we actually can’t track any overtime hours for that second week yet (even though they have passed that overtime threshold) because we don’t know the total number of overtime hours they will be working.
Instead, we will pay them for 90 regular hours and 10 overtime hours on the paycheck they receive on the 23rd. Now, let’s finish out that week and say that the employee takes the 16th off, but then works on the 17th for 5 more hours. Then they finish out the next week without any overtime tracked, but work 45 hours the last week of the month. Leaving employee timesheets
looking a little something like this:
Now that the week in which they recorded the overtime for the week of 1/11/15 - 1/17/15 has closed, we can actually calculate that overtime and include those overtime hours with the next paycheck. Since the next pay period closes on the 31st, and just so happens to line up with our week ending day (Saturday), then we’re in luck! All overtime hours for that last week will be included in this check too! Meaning, this time around, they will get paid for 70 regular hours and 20 overtime hours, even though they technically only worked 10 overtime hours this pay period.
We are pulling that extra ten overtime hours from the week of 1/11/15 - 1/17/15, which couldn’t be paid out during that first pay period because the week hadn’t actually closed yet.
Clear as mud, right? Don’t worry! If you’re still feeling a little fuzzy on the topic of overtime, we have another great blog post you can review for further reading or contact us and we'd love to chat about it.
If you love the idea of never needing to deal with these overtime calculations yourself again, then go ahead and get started with a free TSheets trial and see how much easier your life (and payroll process) becomes!