The Fundamental Guide to Overtime Rates and Calculations for Healthcare Practices
There’s plenty to do in any healthcare practice when it comes to payroll. One particularly complicated factor is calculating overtime. Overtime pay can sometimes be difficult to calculate when you take into account various laws and protocols.
Some of these hidden elements of overtime pay can potentially cost your practice hundreds of thousands of dollars if you don’t get it right the first time. This is due in part to some laws and exceptions to overtime pay being tricky or easy to miss.
This guide will break down how to calculate overtime rates so that you don’t unknowingly put your practice at risk.
In This Article:
- What is Overtime?
- How Much is Overtime Pay?
- Is Overtime Pay Required by the Law?
- What About Double Time?
- Who is Eligible for Overtime Pay?
- What if I Don’t Pay Overtime?
- How Do I Calculate Overtime?
- Hourly Employees
- Salaried Employees
- Employees on a Fixed Work Week
- Employees on a Fluctuating Work Week
- Paying Employees for Piece-Rate Work
- Weighted Overtime
- Setting Overtime Expectations
What is Overtime?
Overtime pay is a higher rate of pay that employees receive for hours that are in excess of a standard work week. In most cases, a standard work week is defined as 40 hours, but some states follow different guidelines, such as the California overtime rules mentioned below.
Recommended Reading: What Practice Owners Need to Know About Daily vs. Weekly Overtime
How Much is Overtime Pay?
The Fair Labor Standards Act (FLSA) requires that employees receive overtime pay based on the following rule:
- Overtime will be paid at 1.5 times the employee's regular rate of pay for overtime hours worked over 40 hours a week.
California Overtime Rules
While that is the norm, there are variables from state to state. For example, California has a unique set of rules for overtime pay.
- Each employee is paid for anything over 40 hours, but they are also paid for working more than eight hours in a work day.
- They’re also paid for the first eight hours of work performed on the seventh consecutive work day in a single work week.
It’s crucial to know the general rules and regulations for your state. Not only does this keep your practice compliant, but can potentially save you a lot of money.
Is Overtime Pay Required by the Law?
There are exempt and non-exempt employees. The term "exempt" is used to refer to employees that do not qualify for overtime protections, while "non-exempt" refers to employees that are eligible for overtime. There are certain types of jobs which are explicitly exempt from FLSA guidelines such as minimum wage requirements and child labor laws.
What About Double Time?
Similar to overtime, double time is an hourly rate of twice the employee's regular rate of pay. Employees get double time when they work an excess of 12 hours in any work day, and when they work for more than eight hours a day for seven consecutive days 8 on the seventh consecutive day of work in a workweek.
Who is Eligible for Overtime Pay?
As part of the FLSA, employees must be paid an overtime rate for all hours beyond their regular 40-hour work week, unless they’re exempt.
If I Don't Pay Overtime What Is the Risk?
Not paying overtime is one of the easiest ways to put your practice at risk of employment claims. The average employment claim for unpaid wages that include overtime aren’t just costly, but are also eligible for the Secretary of Labor to bring suit for back wages, as well as an equal amount in liquidated damages.
Simple steps like automating your timekeeping can help prevent this. More possible penalties for non-compliance with paying overtime include:
- Wage claims with the Division of Labor Standards Enforcement.
- Lawsuits filed by employees to recover the lost wages.
- Claims for a waiting time penalty, which is a penalty imposed on employers who don’t pay overtime.
All of these outcomes are costly for your practice.
Recommended Reading: Importance of an Employee Handbook (& 6 Things to Know When Managing Employees)
How Do You Calculate Overtime Hours?
There are six ways to calculate overtime depending on the type of employment contract.
1. Hourly Employees
If your employees are paid by the hour, overtime is 1.5x their hourly rate. For this example, this is an overtime calculation for an employee who’s paid $10 an hour:
$10 x 1.5 = $15 overtime rate
2. Salaried Employees
Overtime is calculated differently for eligible salaried employees paid on a weekly or monthly basis.Employees paid on a weekly basis are paid overtime at 1.5x the rate of their calculated hourly pay, which is their weekly salary dividing by the number of hours in their typical work week. Here’s what that would look like for an employee who’s paid $1,000 a week for a 40-hour work week:
$1,000 / 40 = $25 regular hourly rate
$25 x 1.5 - $37.5 overtime rateFor monthly employees, calculate overtime by first breaking it down by week. For an employee paid $4,000 a month, the calculation would look like this
$4,000 x 12 = $48,000 yearly salary
$48,000 / 52 = $923 weekly salary
$923 / 40 = $23 regular hourly rate
$23 x 1.5 - $34.5 overtime rateIf your employee is paid annually, calculate their overtime by first calculating their weekly pay. Here’s what they looks like for an employee paid $67,000 a year:
$67,000 / 52 = $1,288 weekly salary
$1,288 / 40 = $32.20 hourly salary
$32.20 x 1.5 = $48.30 overtime pay
3. Employees on a Fixed Work Week (Less Than 40 Hours)
Even if an employee typically works less than 40 hours a week, you are not required to pay them overtime until they exceed a 40-hour work week. Here’s an example calculation for an employee paid $10 an hour who typically works a 30-hour work week:
$10 x 1.5 = $15 overtime pay
40-hour work week: $10 x 40 = $400
45-hour work week: ($10 x 40) + ($15 x 5) = $475
4. Employees on a Fluctuating Work Week
In some cases, salaried employees might not always work a 40-hour work week. In this case, you’ll have to calculate their hourly rate for each individual week they’re owed overtime. The U.S. Department of Labor explains this as such:
Under the fluctuating workweek method, overtime pay is based on the average hourly rate produced by dividing the employee’s fixed salary and any non-excludable additional pay (e.g., commissions, bonuses, or hazard pay) by the number of hours actually worked in a specific workweek.
Here’s how to calculate an employee who was paid $1,000 for a 50-hour work week:
$1,000 / 40 = $25 regular hourly rate
$25 x 1.5 - $37.5 overtime rate
5. Paying Employees for Piece-Rate Work
In this type of calculation, employers have to satisfy the minimum wage to an employee. Some employees get paid for piece work such as a mechanic who’s paid for each vehicle repaired. In this case, if that employee has worked a 40-hour work week, they must make the equivalent of minimum wage for that week.
For example, a mechanic in Seattle is typically paid $100 per vehicle repaired. The minimum wage in Seattle is $15 an hour.
Here’s her calculated pay for fixing 5 cars in a 30-hour work week:
$100 x 5 = $500
Here’s her calculated pay for fixing 7 cars in a 40-hour work week:
$15 x 40 = $600
6. Weighted Overtime Pay
Weighted overtime is also known as “blended” overtime. It is typically used in situations where an employee performs various types of jobs at one organization and gets paid different rates for each, such as a hygienist who might also work the front desk.
In this case, employers have two options:
- Calculate weighted overtime when an employee works at two or more different pay rates.
- Default to the higher rate of pay for overtime, which is ultimately more costly.
Here’s how to calculate overtime for a person paid $30 an hour as a hygienist and $15 an hour as an administrator working the front desk. For this particular example, he’s worked 30 hours as a hygienist and 30 hours as an administrator.
First, multiply the hours worked in each position by the typical pay rate:
$30 x 30 = $900
$15 x 30 = $450
Total compensation: $1,350
Then, divide the total compensation by the number of hours worked to get your weighted average:
$1,350 / 60 = $22.5
Multiple your weighted average by 1.5:
$22.5 x 1.5 = $33.7 overtime pay
If you’re confused, don’t worry. This is why HR for Health calculates this for our payroll clients.
Setting Overtime Expectations
Efficiently managing overtime means having a clear grasp of where extra money is being funneled. This allows you to know whether overtime is worth the expense, or if an employee’s hours need adjustment. Think proactively by tracking time, cross-training, and vocalizing overtime expectations.
Knowing the details behind overtime rates and calculations means saving money. While the rules are constantly changing, having a good grasp of the basics can make a world of difference. We automatically calculate OT based on your state’s rules.
If you have additional questions, please schedule an HR consultation with us by booking time here or calling us at (888) 316-9284.