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May 13, 2010
How to Calculate Overtime Premiums

In a BLR webinar titled "Reducing Overtime Costs: What You Legally Can—and Can't—Do to Keep Workers at Their Straight-Time Rates," Laura P. Worsinger, Esq., provided a formula for calculating overtime premiums.

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The CFR states that overtime premiums are certain premium payments made by employers for work in excess of or outside of specified daily or weekly standard work periods or on certain special days are regarded as overtime premiums.

Here is an example that demonstrates how to calculate overtime premiums: An employee earns $10 per hour for 42 hours, and is paid double-time (or $20 per hour) for working 8 hours on Sunday. So the employee has worked a total of 50 hours.

The employee's overtime pay and gross wages can be calculated as follows:

  • Calculate total remuneration ($10/hr x 42 hr = $420.00; $20/hr x 8 hr = $160--$420 + $160 = $580).
  • Calculate the regular rate of pay ($580 / 50 hr = $11.60 hr).
  • Calculate the overtime pay ($11.60/hr x 10 hr x 50% = $58.00)
  • Calculate total gross wages ($580 + $58 = $638).

So, what effect would this have on the calculation we made above? Double-time pay for work on a Sunday may be classified as an overtime premium:

  • Subtract the overtime premium from the calculated overtime pay to determine the actual amount of overtime pay due, but the result cannot be less than zero ($58 - $160 = $0).
  • Add the employee's total remuneration, overtime premium, and overtime pay together to calculate the gross wages ($580 + $0 = $580).
  • The savings equals $58 ($580 vs. $638).

Laura P. Worsinger, Esq. is Of Counsel with the Los Angeles office of Dykema Gossett PLLC. She has broad counseling and litigation experience and specializes in the defense of employers in individual and class actions involving wage and hour violations, misclassification, discrimination, wrongful termination, and other employment-related proceedings. She can be contacted at lworsinger@dykema.com.

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