Overtime calculation has four steps. Get any one wrong and you face either underpaying employees or overpaying them - both create problems down the line.
Step 1: Identify the threshold
The threshold is the number of hours after which overtime starts. Most European countries use 40 hours per week. California uses 8 hours per day - any hour beyond the eighth triggers overtime, even if the total week stays under 40. Part-time workers often have a contracted threshold below 40 hours, so overtime kicks in earlier for them.
Check the employment law in your jurisdiction and the individual employment agreement. Both can set thresholds, and the stricter one applies.
Step 2: Calculate the regular rate
For hourly workers, the regular rate is the hourly wage.
For salaried workers, divide the weekly salary by the standard contracted hours. A worker earning €2,400 per month has a weekly salary of €600 (€2,400 / 4). At 40 contracted hours per week, the regular rate is €15 per hour.
One common error here: using gross salary instead of basic salary. Allowances are excluded from the regular rate calculation in most jurisdictions. Under the US Fair Labor Standards Act, most extra payments - including non-discretionary bonuses and commissions - must be included in the regular rate, not excluded.
Step 3: Apply the premium
Two standard premiums exist:
- +50% means regular rate × 1.5
- +100% means regular rate × 2.0 (double time)
At €15 per hour regular rate, the overtime rate at +50% becomes €22.50.
The applicable premium depends on the employment agreement, collective bargaining agreement, or national law. Some countries specify different premiums by time of day and by day of week.
Step 4: Calculate overtime pay
Overtime hours × overtime rate = overtime pay.
Five hours of overtime at €22.50 per hour = €112.50.
For the full pay period, add overtime pay to regular pay:
40 regular hours × €15 + 5 overtime hours × €22.50 = €600 + €112.50 = €712.50.
Common mistakes
Four errors appear in overtime calculations more than any others:
- Using gross salary rather than basic salary for the regular rate calculation.
- Leaving commissions or non-discretionary bonuses out of the rate where law requires their inclusion.
- Applying a weekly threshold when a daily threshold should govern - or the reverse.
- Starting overtime work without written employee consent, which some countries require before the hours occur, not after.
The last point matters for compliance audits. A record showing overtime hours without a prior consent document gives a labor inspector something to act on.
Automated flagging
Manual overtime tracking works at 5 people. At 15 people running variable shifts, calculation errors compound fast.
Rezano calculates overtime in real time as hours accumulate. The system flags shifts that breach the weekly or daily threshold before the pay period closes, giving managers time to review rather than discovering the discrepancy after payroll runs.