How to Calculate Overtime for Monthly Salary Employees

Keeping up with overtime earnings can be a real headache. It’s a common misconception that you don’t have to calculate overtime for monthly salary employees. In reality, many salaried workers are eligible for overtime pay for extra work. Below, you’ll learn how to calculate overtime for monthly salary employees and ensure you are paying your team fairly. 

Here are the main things you need to know about how to calculate overtime for monthly salary employees:

• Some employees are exempt from overtime pay
• Nonexempt employees may be eligible for overtime
• The duties test will help you determine whether someone is exempt or nonexempt
• Tools can track hours and ensure everyone, including salaried employees, receives fair pay
• Proper overtime management will improve the satisfaction of salaried workers 

Are salaried employees entitled to overtime pay?
Importance of managing monthly salaried employees’ overtime
How to calculate overtime for monthly salary employees
Using software to accurately track employee overtime

Are salaried employees entitled to overtime pay?

Sometimes, yes. It depends on how the worker is classified. There are two types of salaried employees: exempt and nonexempt. Exempt employees are usually not entitled to overtime pay. Nonexempt workers are. 

Here’s a closer look at each group.

Exempt Employees:

• Typically paid a fixed salary
• Perform executive, administrative, or professional duties
• Generally not entitled to overtime pay

Nonexempt Employees: 

• Usually earn an hourly wage or salary
• Entitled to overtime pay for hours that exceed the 40-hour work week 

Many industries, including retail, food service, and healthcare, employ nonexempt salaried workers who are eligible for overtime. Knowing which category your employees fall into will help you maintain compliance and provide fair compensation.  

What is the duties test?

The duties test considers a person’s primary job responsibilities. If they mainly perform executive, administrative, or professional duties as defined by federal regulations, they are exempt. Computer-based employees and outside sales representatives’ roles may also qualify for overtime exemption under the duties test. 

You must also use the salary test to determine whether a worker is exempt or nonexempt. They must be paid a fixed salary that doesn’t vary based on work quality or quantity. They must also be paid a salary that meets minimum thresholds. The minimum salary for 2024 is $43,888, and the minimum salary for 2025 is $58,656. 

If a worker passes the duties test and both parts of the salary test, they are exempt. That means you won’t have to calculate overtime for them. If they fail any portion of these tests, they are nonexempt. 

Importance of calculating monthly salaried employees’ overtime

Properly managing overtime for salaried workers will help you comply with state and federal labor laws. It also ensures your employees are treated fairly and paid correctly for their time. Keeping a close eye on overtime for salaried employees will also help you:

Get better labor cost insights

When you accurately track overtime, you get a clearer picture of your labor costs. Knowing exactly how much you’re spending on overtime will help you create better schedules and ensure staffing levels align with company needs. 

See who contributes the most to your company’s overtime

For example, suppose that you employ three nonexempt salaried managers. The day shift and night shift managers work a minimal amount of overtime. However, your weekend manager racks up huge overtime checks.

These insights help identify areas where you might need to adjust your scheduling or hiring practices. You can make a few strategic changes and reduce labor costs, thereby increasing profitability. 

Improve employee well-being and productivity 

Tracking overtime effectively can lead to happier workers and increased productivity. Everyone wants to be compensated fairly for the work they do. Make sure you are treating your workers well, and they will reward you with loyalty and increased output. 

How to calculate overtime for monthly salary employees

There are a few different ways to calculate overtime for employees with monthly salaries. If you are using Excel or other manual options, you’ll need to do some number crunching. Here are three quick scenarios that illustrate how to run your calculations: 

Scenario #1: Salaried employee with fixed hours

Suppose that your shift manager, John, earns a weekly salary of $1,000 and usually works 40 hours every week. He’s nonexempt and worked 50 hours this week, so you need to calculate his overtime pay. Here’s what your calculations should look like:

1. Find the hourly rate: Divide $1,000 by 40 = $25 per hour 
2. Calculate the overtime rate: 1.5 x $25 = $37.50
3. Multiply the overtime by the number of extra hours worked: $37.50 x 10 = $375

So John should earn $1,375 for the week, as opposed to his normal $1,000. 

Scenario #2: Salaried employees without fixed hours

In scenario two, your employee, Lisa, doesn’t have fixed working hours. She earns a monthly salary of $4,500. However, she is nonexempt and has worked 200 hours over the past four weeks. In this case, you’ll need to:

• Determine the monthly salary: $4,500
• Calculate the total number of hours worked in the month: 200 hours
• Find the hourly rate: Divide the monthly salary by the total number of hours worked; $4,500/200 = $22.50
• Calculate the overtime rate: 1.5 x $22.50 = $33.75
• Multiply the extra hours by 1.5: $33.75 x 40 = $1,350

If Lisa worked a total of 200 hours in the month and the standard workweek is 40 hours, we assume that she worked 160 regular hours and 40 overtime hours. Her overtime wages are $1,350, so her total monthly pay would be $5,850. 

Scenario #3: One more scenario

Consider an employee named Tom who earns a monthly salary of $3,800 and works 40 hours weekly. 

• Calculate the weekly salary: Divide the monthly salary by 4.33 (average number of weeks per month); $3,800/4.33 = $877.14
• Find the hourly rate: $877.14/40 = $21.93
• Calculate the overtime rate: 1.5 x $21.93 = $32.90

If Tom worked eight hours of overtime last week, he would earn $32.90 x 8 = $263.20. 

Is your head spinning at the thought of running these calculations for every salaried employee? The good news is that there are better options, like full-service payroll software. 

Using software to accurately track employee overtime 

Employee scheduling software makes tracking and calculating employee overtime easy. When I Work can help you manage employee hours and calculate overtime effortlessly automatically with custom wage settings. 

When I Work has lots of other tools to make your life easier, including team messaging capabilities, a time clock, and much more. 

Calculate overtime, track employee hours, and more with When I Work 

Managing overtime for monthly salaried employees doesn’t have to be a nightmare. With the right tools, you can ensure compliance and improve employee satisfaction. When I Work offers comprehensive solutions to track employee hours and manage schedules. 

Don’t risk compliance issues. Sign up for a free trial of When I Work today.