Federal law—specifically the Fair Labor Standards Act (FLSA)—requires any salaried employee making less than $47,476 per year to be eligible for overtime payments for extra hours worked. This does not necessarily mean you need to implement an increase in an employee’s total pay; it could just mean a conversion from an annual salary to an hourly rate. Use the overtime wage calculator below to convert your salaried costs to hourly costs with overtime.

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Here’s some guidance on how to determine an employee’s regular hourly rate based on his or her salary, as well as an easy-to-use overtime pay rate calculator to help you convert an employee’s existing salary into an hourly wage plan.

Remember, this is not official legal advice. If you have any questions about overtime, check the federal and state laws, or consult an employment attorney to learn more about overtime laws. 

How to use the overtime calculator

1. Input the employee’s annual salary.
2. Enter the number of paid weeks the employee works per year.
3. Calculate the approximate number of hours that an employee is working every pay period
4. Break that hourly number down between the employee’s regular hours worked and the overtime hours worked
5. Input regular hours and overtime hours in the tool to get effective hourly wage.

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How do I calculate an hourly rate from an employee’s salary with an overtime calculator?

1. Calculate the approximate number of hours that an employee is working every pay period. For example, if an employee is working eight hours a day, five days a week, their weekly number of hours would equal 40 in a typical week of work.
2. Break that hourly number down between the employee’s regular hours worked and the overtime hours worked. For example, if an employee works 50 hours in a given work week, his or her regular hours worked would equal 40 hours, and they would have worked 10 hours of overtime for the week.
3. Once you have the employee’s hours separated by regular pay hours and hours for which you should be paying overtime wages, you can now divide the weekly average salary by these hours. In order to get a more accurate figure, you may want to exclude weeks in the year that he or she does not work.
4. For example, if you give your employees two weeks of unpaid vacation, you may want to base your weekly salary upon 50 weeks instead of 52, taking out the two weeks that they are not being paid.
5. Let’s put it all together and go through another example. If you have a manager who earns $47,476 in regular salary, and they generally work 40 hours in a standard week, their hourly rate would be equivalent to $23.74 an hour.

How do I use an overtime hours calculator? 

Using an overtime hours calculator, also known as an overtime wage calculator, is much easier than calculating the amount you should pay employees who currently make an annual salary and need to be converted to an hourly rate. 

1. The first step in using the Homebase Overtime Wage Rate Calculator to determine the employee’s new hourly rate instead of the regular rate of pay is to plug in the employee’s current annual salary in the “Annual Salary” field.
2. Then, in the second field titled “Number of Paid Work Weeks per Year, input the number of weeks you expect the employee to work full-time in a given year (remember to take out any unpaid vacation weeks). 
3. In the field titled “Regular Hours per Week,” input the number of hours you expect the employee to work without crossing into the overtime hours threshold. After you’ve completed that field, input the employee’s expected overtime hours in the field titled “Overtime Hours per Week.”
4. And that’s all you have to do! The overtime calculator will do the rest of the work for you, and calculate the effective hourly rate, which will appear below.

For example, if you input an employee’s $50,000 salary, with 50 paid work weeks in a year, 40 hours in a regular work week, and 0 hours of overtime in a work week, the calculator will determine that the employee’s regular hourly pay rate should be at least $25 an hour. 

A few things to remember when you get your final hourly wage estimation: First, the new hourly rate must be higher than the minimum wage your jurisdiction stipulates. If the effective hourly rate determined by the calculator ends up at a lower rate than minimum wage, you will need to decide whether you want to adjust the employee’s hours, or increase your total labor budget and pay them a little more per hour. 

Second, you will also need to start complying with meal break and rest break requirements stipulated by state and federal laws when it comes to your new hourly employees. To stay compliant without the extra headache, you can use the free timesheets from Homebase to automatically track the required breaks and calculate overtime, eliminating extra work for you and your managers.

What is an overtime rate? 

An overtime rate refers to any hours an employee works that go past the standard limit of 40 hours per week, according to the federal legislation laid out in the Fair Labor Standards Act. Since working more than 40 hours is considered overtime work, the federal law requires employers to calculate overtime compensation and pay the employee more money than he or she is normally paid for regular hours. 

The official rule on how much an employee should be paid for any hours in excess of 40 for a given week is that the regular pay rate should be multiplied by one and a half. For example, if an employee is normally paid $10 an hour for regular hours worked, the overtime rate of pay should be $15 an hour for any hours of work in excess of 40.

Let’s take the example a step further. Let’s say the employee works 50 hours in a week instead of the standard 40. Since the employee makes $10 an hour, the employee should be paid $400 for the 40 hours worked, and $150 for the extra 10 hours worked. 

Including the one-half times overtime multiplier, the employee would be paid $550 for the week they worked, instead of the standard $400 per week. 

Why should I use an overtime calculator? 

The most important reason for using an overtime calculator to determine an employee’s hourly rate is that you need to be as accurate as possible when converting an annual salary to a new hourly wage system. 

Manually calculating the new rate can most certainly be done, but you run the risk of violating overtime rules due to human error, which could lead to lawsuits or fines because you are not paying an employee the appropriate amount based on their total hours worked. 

How do I keep track of overtime hours? 

If you need to keep track of the number of overtime hours for employees below the federal salary threshold requirements, Homebase can do that for you. Here is how it works: First you need to enable the feature by heading to the Settings section in the Homebase app. Then select Overtime. Your employee’s overtime will then be tracked and displayed on the Timesheets page. 

Take these steps to ensure your salaried employees are being tracked. 

1. Sign in to your existing Homebase account.
2. Select “Team” in the navigation bar at the top.
3. Select the employee you wish to edit.
4. Click on the “Wages & Roles” tab.
5. Enter the annual salary in the “Wage Rate” field.
6. After clicking the drop down box for hourly, select “Annually.”
7. Once you’re done editing, click “Save Changes,” which can be found in the top right corner.

Salaried employee wages are assigned an equal share across every single day for labor reporting purposes. For example, if you set an employee’s salary of $40,000 for 364 days (minus a day for leap year), our reporting data on the Homebase app would show $110 per day.

Homebase Timesheets can also help you stay on top of when your hourly employees are about to hit the overtime hours threshold based on the hours they clock in and out with. The app automatically calculates overtime to help you stay compliant with state, federal and local laws. Failing to stay compliant with your local regulations could lead to several penalties to your business, so it’s important to implement the right tools to help you stay on top of overtime possibilities. 

Homebase Scheduling helps you manage overtime as well by alerting you not only when an employee hits overtime in real time, but also sends an alert if an employee is set to hit overtime hours based on the schedule you built for the week. 

This will allow you to keep a pulse on rising labor costs and avoid scheduling employees who may be eligible for overtime if they work more than 40 hours a week. By staying on top of who’s about to cross that threshold, you can avoid any issues by scheduling someone else who does not run the risk of going into overtime. 

With Homebase, you’ll never have to worry about manually calculating overtime. You’ll also never have to worry about manually converting an employee’s salary to a new hourly rate to keep your employees exempt, or heading into the overtime hours threshold and having to pay a non-exempt employee more than their regular hourly rate. This will help your business’s bottom line, as overtime can add up and become a costly headache. 

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Want to learn more about Homebase? Check out our other posts on how to reduce overtime costs and common wage mistakes restaurant operators make.