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How to Calculate Overtime Pay

The overtime pay formula is straightforward: take the employee's regular hourly rate, multiply it by the overtime rate (usually 1.5x for time and a half), then multiply by the number of overtime hours worked.

Overtime pay = Hourly rate × Overtime multiplier × Overtime hours

For example, an employee earning $20/hour who works 8 hours of overtime in a week earns $20 × 1.5 × 8 = $240 in overtime pay. For a team of 15, that's $3,600 per week or $187,200 per year in overtime costs alone.

Overtime Rules by Country

United States (FLSA)

Under the Fair Labor Standards Act, non-exempt employees must receive 1.5× their regular rate for hours worked beyond 40 in a workweek. Some states have additional rules: California requires overtime after 8 hours in a single day, and double time after 12 hours.

United Kingdom

UK law doesn't require employers to pay a premium for overtime, but the average hourly pay (including overtime) must not fall below the National Minimum Wage. Most employers pay between 1.25× and 1.5× as a matter of practice or contractual agreement.

European Union / Spain

In Spain, overtime is capped at 80 hours per year per employee (Real Decreto Legislativo 2/2015). Overtime must be compensated with either additional pay (minimum equal to regular hourly rate) or equivalent time off within four months. Many convenios colectivos set higher overtime premiums of 1.25× to 1.75×.

When Should You Hire Instead of Paying Overtime?

The overtime vs. hiring decision comes down to one calculation: compare the annual cost of overtime across your team against the fully loaded cost of a new hire (salary + benefits + taxes + training).

As a rule of thumb, if your team averages more than 5-8 overtime hours per person per week consistently, hiring is almost always cheaper. The calculator above shows you the exact breakeven point for your specific numbers.

Beyond cost, chronic overtime leads to burnout, higher turnover, more errors, and lower morale. The hidden costs of overtime often exceed the direct pay premium.

5 Ways to Reduce Overtime Costs

1. Distribute shifts more evenly. If two people are doing 10 overtime hours while three others have availability, you have a scheduling problem, not a staffing problem.
2. Cross-train employees. When only one person can cover a role, overtime becomes unavoidable. Cross-training creates flexibility.
3. Track hours in real time. If you only see overtime on the payroll report, it's too late. Real-time tracking lets you adjust before anyone crosses the threshold.
4. Set overtime alerts. Get notified when an employee approaches 35-38 hours so you can redistribute remaining shifts.
5. Review scheduling patterns monthly. Look for recurring overtime on specific days or shifts. These patterns point to structural gaps you can fix with better planning.

Overtime Calculator Formula Reference

This calculator uses the standard overtime cost formulas used by payroll professionals:

• Overtime hourly rate = Regular hourly rate × Overtime multiplier (e.g., $18 × 1.5 = $27/hr)
• Weekly overtime cost per employee = Overtime hourly rate × Overtime hours per week
• Annual overtime cost = Weekly cost per employee × Number of employees × 52 weeks
• Hiring breakeven = New hire annual cost ÷ (Overtime rate × Number of employees × 52)

The potential savings estimate (20-40% reduction) is based on industry data on overtime reduction through scheduling optimization. Actual results vary by industry, team size, and current scheduling practices.