Time and a Half: What It Is & How to Calculate It?

Running a business is hard work. 

You have so many things on your mind it can feel like you’re constantly spinning plates, and trying not to let any drop. 

Whilst having employees is a big bonus as you can outsource parts of your business to people you trust, they also bring some complications. 

If you run a business and have nonexempt employees, once they have worked over 40 hours during the workweek you have to pay them overtime. This tends to be in the form of ‘Time and a Half’.

But what is time and a half and how do you calculate it?

We’ll break it all down for you so you can approach the topic with confidence.

Here’s What We’ll Cover:

What is Time and a Half?

When Does Time and a Half Apply?

How do you Calculate Time and a Half?

Exempt and Nonexempt Employees

Key Takeaways

What is Time and a Half?

Time and a half is the process of paying your employees for extra, non-contracted hours they work. 

You may hear this being called overtime, overtime premium or overtime rate of pay.

The 40-hour workweek threshold is not an arbitrary amount. It’s actually decided by the Fair Labour Standards Act (FLSA) which regulates a lot of labor laws, including overtime. 

When Does Time and a Half Apply?

As we mentioned, once a nonexempt employee hits the certain threshold of over 40 working hours a week, you have to pay them time and a half. 

Overtime policies tend to vary from business to business, and they can also differ from state to state. For example, some states have a law that overtime must be paid if an employee works more than 8 hours a day. 

Here are some examples of when Time and a Half doesn’t apply:

• H3: Contrary to popular belief, working on holidays does not legally count as overtime. Some employers may choose to pay overtime on bank holidays such as Labor Day or Independence Day, but it is not legally enforced.  
• H3: When it comes to religious holidays, it’s the same. Though company policy must be issued consistently and without discrimination.

How do you Calculate Time and a Half?

Calculating an employee’s overtime pay is reasonably straightforward. 

Time and a half is, as the name suggests, 50% more than the employee’s regular rate of pay. So for every hour of overtime that an employee works, you have to pay them their regular rate plus a half on top of that. 

Essentially you’re multiplying their regular hourly rate by 1.5.

This works for both employees on an annual salary, and employees being paid an hourly basis. 

For salaried employees, you’ll just have to calculate what their hourly rate would be. 

So if you have an employee who is making a flat $700 a week and they normally work 35 hours per week, you would divide $700 by 35 for their hourly rate. You would then calculate the overtime rate from there. 

Let’s take a look at an example of calculating overtime:

Let’s say you pay an employee $10 an hour and they work an hour of overtime.

For that one hour of overtime, you would pay them the original $10 an hour, plus 50% of the original rate.

So the calculation would be:

Hourly Rate: $10

Overtime Rate: 50% of $10 = $5

Full overtime rate: $10 + $5 = $15

So for every hour of overtime that employee works, they’d be getting paid $15 an hour instead of $10. 

But, not all employees are eligible for overtime pay. Their ability to receive time and a half pay depends on whether they are exempt or nonexempt. 

Exempt and Nonexempt Employees

What makes an employee exempt or nonexempt? 

Employees are exempt from the FLSA overtime laws if they:

• Make at least $35,568 annually or $684 per week,
• Receive a salary and
• Have job duties that are considered exempt

A job duty that would be considered exempt would include high-level responsibilities that affect the overall company operations. This could be executive, administrative or computer-based duties for example. 

It’s the exact reverse for nonexempt employees. So they will receive overtime if they: 

• Do not make at least $35,568 annually
• Are not salaried and/or
• Do not have exempt job duties 

Key Takeaways

Paying an overtime rate on top of an employee’s regular rate obviously means you’ll be paying more. Although this can make an impact on your overheads, it’s a great way to show your employees that you value their time and incentivize hard work. 

Are you looking for more business advice on everything from starting a new business to new business practices? Check out the FreshBooks blog. 

FreshBooks is accounting software that provides accounting solutions for small business owners.

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