How it's calculated
Under the Fair Labor Standards Act, nonexempt employees must be paid at least one and a half times their regular rate for every hour over 40 in a workweek.U.S. DOL Some states and union contracts require double time in some cases, so the calculator offers both.
The employer's cost of overtime is the overtime pay plus the extra employer payroll taxes it triggers. Social Security and Medicare apply to overtime like any pay.IRS Federal and state unemployment taxes only apply up to their wage bases, which most full-time regular pay already passes, so overtime often adds nothing there. The calculator works the taxes out twice, with and without the overtime, and the difference is the extra tax.
The formula
- Regular pay = hourly rate × regular hours (up to 40) × 52.
- Overtime rate = hourly rate × 1.5 (or × 2 for double time).
- Overtime pay = overtime rate × overtime hours per week × weeks with overtime.
- Extra employer tax = employer taxes on (regular + overtime pay) − employer taxes on regular pay, where employer taxes are Social Security (6.2% up to $184,500), Medicare (1.45%), FUTA and state unemployment tax up to their wage bases.
- Overtime cost = overtime pay + extra employer tax. Cost per overtime hour = overtime cost ÷ overtime hours.
Worked example
A $25-an-hour employee in Texas who works 5 hours of overtime every week earns $9,750 in overtime pay over the year, and costs the employer $10,496 in all.
| Line | Without overtime | With overtime | Overtime adds |
|---|---|---|---|
| Pay | $52,000 | $61,750 | $9,750 |
| Employer Social Security | $3,224 | $3,829 | $605 |
| Employer Medicare | $754 | $895 | $141 |
| Federal unemployment (FUTA) | $42 | $42 | $0 |
| Texas unemployment tax | $243 | $243 | $0 |
| Total cost | $56,263 | $66,759 | $10,496 |
Each overtime hour costs $40.37, compared with $27.05 for a regular hour, before benefits.
Assumptions and limitations
- Weekly overtime only. The FLSA counts hours over 40 in a workweek. Some states also require overtime for hours over a daily limit; enter those hours as overtime.
- Regular rate. The FLSA regular rate includes most non-discretionary bonuses, commissions and shift differentials, which raise the overtime rate; enter the full regular rate.
- Benefits are not included. Health insurance and other fixed benefits usually don't rise with overtime, which is why overtime can cost less per hour than hiring. Retirement contributions that are a percentage of pay would add to the cost.
- State rate. The default is the state's new-employer unemployment tax rate; enter your own under "My rate".
- The employee's side. Overtime pay is taxed like other wages for the employee, though a federal deduction for qualified overtime pay can lower their income tax; see the paycheck calculator.