Running payroll can be complicated — save money and time with our advanced overtime settings
As a busy business owner or bookkeeper, you have better things to do than spend hours running payroll and calculating overtime. Wouldn’t it be great if you could automate the process and reduce the time you spend making manual corrections to time cards?
Introducing the new TSheets Pay Rate Engine. Our Pay Rate Engine allows you to customize and automatically track overtime and holiday pay rates for individuals, groups, or your entire company. Easily preset overtime calculations and map them to QuickBooks Online or QuickBooks Desktop Payroll, for example, to eliminate time-consuming and frustrating manual overtime calculations that could result in costly errors.
It’s a simplified solution to an otherwise complicated set of calculations. Sure, you could do it all by hand. But who wants to? (If you are one of those crazy people, we have the manual calculations below!)
A better solution for a big payroll problem
Our Pay Rate Engine has advanced overtime settings to address the needs of multiple industries. These include the ability to calculate multiple pay rates by hours of the day or days of the week, and to set overtime rates by day, week, or by pay period. You can also set pay rates to reflect holiday or weekend rates.
If your state has a particular set of overtime laws, you’ll be happy to learn our Pay Rate Engine has customization options that make it easy to comply. Say you’re in California, and you’re wondering how to calculate a worker’s overtime, including double time pay. Our Pay Rate Engine can help you account for that. Or maybe you’re in Alaska, where employers must pay workers daily and weekly overtime. Our TSheets Pay Rate Engine can do that too. The TSheets Pay Rate Engine can accommodate even the most complex overtime rules!
Some employers will find our Pay Rate Engine particularly helpful, including those in medical, technical, retail, and food service industries. That’s because the TSheets Pay Rate Engine makes it easy to assign different rates to different employees and set up overtime rules in advance (including holiday rates that will come in handy during any Black Friday rush).
Our TSheets Pay Rate Engine is now fully integrated with all TSheets accounts. Check out our overview video below, then head on over to your own account’s advanced settings to customize your overtime calculations.
A lesson in overtime — how staying compliant protects your bottom line
It pays to calculate overtime correctly. According to a January 2018 internal survey, businesses that use TSheets for payroll report a 6 percent savings on payroll costs.* And that’s not all. Accurate payroll can save your business time and money, but it can also help you avoid committing wage theft.
Employers who ignore the Fair Labor Standards Act (FLSA) or state wage and hour regulations put themselves at risk of expensive lawsuits. While some rule-breaking may be intentional, many employers are surprised to find they’ve been violating employment laws, particularly when it comes to overtime regulations.
This is partly because calculating overtime can be tricky. Small businesses, in particular, may not have an expert on hand to help them navigate the nuances of payroll, let alone the difference between straight time and a person’s regular rate of pay — two factors that go into calculating overtime correctly.
So whether you’ve been looking to learn a new party trick or simply want to know how overtime works at a bare-bones level, here’s a brief lesson on overtime to get you started!
Overtime 101: What goes into overtime pay
To understand overtime, you first have to familiarize yourself with a worker’s regular rate of pay and their straight time. You may also need to know the difference between discretionary and non-discretionary bonuses. Here’s a summary of terms:
- Straight time (sometimes called standard time) is a worker’s hourly wage, multiplied by the number of hours they work in a period, or simply their daily salary. It does not count hours worked during an overtime period, but it can factor in one-time bonuses.
- Regular rate of pay is the amount of money a worker earns in an hour. This includes their hourly wage, of course, but it also factors in additional earnings like non-discretionary bonuses, longevity pay, hazardous duty pay, benefit replacement pay, and other special payments.
- Discretionary bonuses are one-time bonuses. These are not taken into account when determining a worker’s regular rate of pay. Some examples of discretionary bonuses include holiday bonuses or prizes given to winners at a company picnic.
- Non-discretionary bonuses are bonuses that are promised or expected, such as regular attendance awards, commissions, gainsharing, or quarterly rewards for reaching certain goals. A bonus does not need to be given regularly in order to be non-discretionary. It only needs to be expected and/or promised.
Overtime 201: How to calculate overtime
When calculating overtime, an employer must first determine the worker’s regular rate of pay, and to do that, they need to know the worker’s straight time compensation.
You can calculate a worker’s straight time compensation using the following formula:
Straight Time Compensation = Total Hours Worked x Regular Rate of Pay + Bonus
Try it out:
Sarah makes $10 per hour and works 30 hours in a workweek. Sarah doesn’t have any bonuses, so her regular rate of pay is just $10 per hour. Calculating her straight time is simple.
Sarah’s straight time = 30 hours x $10 per hour + $0 bonus
Sarah’s straight time = $300
One week, Sarah receives a discretionary bonus of $50. Her regular rate of pay doesn’t change, because that $50 is a one-time bonus. The only number that goes up is her straight time compensation for that week.
Sarah’s straight time = 30 hours x $10 per hour + $50 bonus
Sarah’s straight time = $350
After some time, however, Sarah starts receiving $30 non-discretionary bonuses each week. This time, her regular rate of pay goes up, as well as her straight time.
Sarah’s straight time = 30 hours x $10 per hour + $30 bonus
Sarah’s straight time = $330
New Regular Rate of Pay = Straight Time Compensation / Total Hours Worked
Sarah’s new regular rate of pay, then, is now calculated like this:
Sarah’s regular rate of pay = $330 straight time / 30 hours
Sarah’s regular rate of pay = $11 per hour
This is important because overtime is calculated using a worker’s regular rate of pay, not their straight time. If Sarah weren’t receiving a non-discretionary weekly bonus, her overtime would be calculated differently.
Sarah’s overtime pay without her weekly bonus: $10 x 1.5 = $15 per hour
Sarah’s overtime pay with her weekly bonus: $11 x 1.5 = $16.50 per hour
Now, when Sarah works more than 40 hours a week, she receives $16.50 for each additional hour. Say Sarah works 42 hours.
Sarah’s compensation = (Sarah’s new regular rate of pay x 40 hours) + (Sarah’s new rate of overtime x 2 hours)
Sarah’s compensation = ($11 x 40) + ($16.50 x 2)
Sarah’s compensation = $473
If Sarah hadn’t been receiving a weekly non-discretionary bonus, her total compensation would have been $430.
See the TSheets Pay Rate Engine in action
As you can see, a lot goes into calculating overtime, and that’s without additional considerations like daily overtime, pre-scheduled holiday pay, or double time. All of this happens on the back end, inside TSheets advanced overtime settings, via our new Pay Rate Engine. No paper and pencil necessary!
Nothing says stress relief like simple and accurate payroll, and with the help of the TSheets Pay Rate Engine, you’ll be able to achieve just that. Want to see it in action? Like what you see? Comment below!
*Based on a survey of 924 businesses that use TSheets for payroll and report savings. On average, they report reducing gross payroll costs by 6%. Internal survey conducted by TSheets in January 2018.