Payroll Overtime Calculation: A Step-by-Step Method (2026)

Fix the Workweek First

Overtime is measured over a fixed, recurring seven-day period the employer designates in advance. It does not have to start on Monday, and it does not have to match the pay period — but once set, it cannot be shifted week to week to dodge premium hours.

Every calculation below depends on that boundary being stable.

The Five Steps in Order

• . Total the hours worked. Paid hours only — unpaid meal periods out, short rest breaks and required training in.
• . Compute the regular rate. Total straight-time earnings for the week, including differentials and non-discretionary bonuses, divided by hours worked.
• . Apply the daily rule if the state has one. Some states pay overtime past 8 or 12 hours in a day.
• . Apply the weekly rule. Hours past 40 in the workweek.
• . Pay the greater of the two, never both for the same hour.

Where Payroll Gets It Wrong

Averaging two weeks of a biweekly period. 46 hours then 34 hours is six overtime hours in week one, not zero over eighty.

Leaving bonuses out of the rate. A promised production or attendance bonus must be spread across the hours it covers and lift the overtime rate.

Paying comp time instead of cash. Private employers generally cannot swap time off for overtime dollars.

Assuming a salary makes someone exempt. Exemption depends on the salary level *and* on duties. A salaried coordinator with no real discretion is usually still owed overtime.

Cost, Not Just Compliance

Overtime is rarely the most expensive option once you count recruiting, benefits and training for an additional hire. The overtime cost calculator shows the loaded premium and the break-even point where a new hire wins.

For construction and public-works payroll, prevailing-wage fringe credits change the math again — that lives in the certified payroll calculator.

Records Are the Defence

Keep punch records, the designated workweek, the rate paid, and the overtime hours for every employee. In a wage dispute the employer's records are the evidence; where they are missing, an employee's reasonable estimate tends to stand. Rebuild any contested week in the timesheet calculator before responding.