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Resource Center / Payroll

Calculating Daily Overtime vs. Weekly Overtime and Correctly Paying Your Team

It's crucial for employers to accurately pay non-exempt employees for overtime, despite the complex nature of daily versus weekly overtime. Here, we explain the basics to help you pay your employees correctly.

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Justworks
Sep 06, 20228 minutes

The generally accepted wage-and-hour standard for full-time employment is 40 hours of work per week, which neatly breaks down to eight hours over five days. But as we all know, a workweek doesn't always turn out in the neatest way.

For instance, there may be times when an employee ends up working more than eight hours in one day, but doesn't work over 40 hours for that week. Other times, they might end up putting in more than 40 hours a week.

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These scenarios raise important questions for employers about how to accurately pay your non-exempt employees for daily overtime (where required) and weekly overtime. To make things even more interesting, not every state views all overtime hours the same way. And there can be instances when pyramiding overtime, which is explained below, is actually allowed.

Here, we’ll explain the basics of how overtime hours should be counted in these situations, and how to calculate them so your employees get paid correctly.

What is Pyramiding Overtime?

Overtime pyramiding, which can happen in states that require payment of daily overtime wages, happens when the same hours are essentially counted twice — once as daily overtime, and then again as weekly overtime. Counting overtime hours for both daily and weekly overtime is not required. Once an overtime hour has been counted for one type of overtime, that same hour does not need to be counted again for another type of overtime.

When employers make the error of pyramiding overtime hours, it means that employees get the same overtime hours counted towards two different overtime limits, and they receive more overtime pay than may be legally required to pay.

Counting overtime hours for both daily and weekly overtime is not required.

Because of how several states (like California) have a daily and weekly overtime requirement, it might be confusing to figure out how to calculate and pay daily and weekly overtime wages. Knowing this, let’s examine a few California-specific rules governing when employees might have both daily and weekly overtime hours accrued in one workweek, and look at a few examples of how overtime hours would be counted.

California Overtime Law

According to the Fair Labor Standards Act (FLSA), under federal law, an employer must pay their non-exempt employees for any overtime work done in excess of 40 hours per week. That’s pretty simple and straightforward, right?

But in California, daily overtime and weekly overtime are tracked separately. The California definitions for what qualifies for overtime are:

  • Daily Overtime: When the employee works more than eight hours per day

  • Weekly Overtime: When the employee works more than 40 hours per week

In addition, there are specific requirements for daily overtime wage payments in California that make things a bit more complicated. According to the California Labor Code, employers are required to pay 1.5x the regular hourly rate when:

  • An employee works more than eight but less than 12 hours in one workday

  • An employee works up to eight hours on the seventh consecutive workday in a workweek

  • An employee works more than 40 hours in any one workweek

And 2x the regular hourly rate when:

  • An employee works more than 12 hours in one workday

  • An employee works more than eight hours on the seventh consecutive workday in the workweek

So, what happens when an employee works in excess of both the daily and the weekly maximum hours in the same workweek? Or when an employee works a few hours on the seventh consecutive work day in a workweek? In other words, if an overtime hour has already been counted toward daily overtime, must that hour be counted again toward weekly overtime? The answer is no.

Overtime hours should only be counted once as either daily overtime or weekly overtime.

California overtime law explains that the employee should be paid overtime for the hours in excess of the daily maximum or weekly maximum, but employees are not required to be paid for more than one type of overtime for the same hour worked. In other words, overtime hours should only be counted once as either daily overtime or weekly overtime.

How to Calculate Overtime

Let’s work through a few examples of how to calculate overtime hours without “over-calculating” overtime, using the California overtime rules from above. Imagine that your California-based company hired a new employee, Lisa, who was asked to work the following schedule:

  • SUN – 0 hours

  • MON – 10 hours

  • TUE – 10 hours

  • WED – 10 hours

  • THR – 10 hours

  • FRI – 10 hours

  • SAT – 0 hours

Under California law, Lisa is entitled to overtime wages when she works more than eight hours in a workday. So, under this schedule, Lisa would earn two hours of daily overtime wages on Monday, Tuesday, Wednesday, Thursday, and Friday.

Lisa is also entitled to overtime wages when she works more than 40 hours in a workweek. So, under this schedule, Lisa would earn 10 hours of weekly overtime. But, since you already counted those 10 hours as daily overtime, you do not need to count the same hours again as weekly overtime. In other words, you should first count daily overtime hours, and then, if any overtime hours remain unaccounted for, those hours should be attributed to weekly overtime.

Let’s look at another example. For Lisa’s second week, she was scheduled for fewer hours per day but more days. This was her schedule for Week 2:

  • SUN – 0 hours

  • MON – 8 hours

  • TUE – 8 hours

  • WED – 8 hours

  • THR – 8 hours

  • FRI – 8 hours

  • SAT – 8 hours

In her second week, Lisa didn’t work more than eight hours on any day, so she did not earn daily overtime wages. However, she did work 48 hours in total this week. The weekly overtime threshold is 40 hours, so she would be entitled to eight hours of weekly overtime pay.

And here is another example. For Lisa’s third week, her schedule was updated again:

  • SUN – 0 hours

  • MON – 9 hours

  • TUE – 9 hours

  • WED – 9 hours

  • THR – 9 hours

  • FRI – 9 hours

  • SAT – 9 hours

For Week 3, Lisa worked six nine-hour days. When it comes to daily overtime hours, she worked one hour of overtime on six days. So, that’s a total of six daily overtime hours this week.

When you look at the full workweek, you see that she worked 54 hours in total this week, which is 14 hours more than the 40-hour limit for the workweek. However, since you have already counted six of those hours as daily overtime hours, you do not need to count those hours again. In fact, you would subtract the six daily overtime hours from the 14 total weekly overtime hours, and you would pay six hours of daily overtime plus eight hours of weekly overtime, for a total of 14 overtime hours.

Remember that overtime should be paid according to whichever number of overtime hours worked for a workweek is greater.

As it turns out, there is a shortcut for these situations where you have both daily and weekly overtime: You calculate both numbers separately (don’t subtract anything out), and then use the larger number. In this example, you have six hours of daily overtime and 14 hours of weekly overtime, so you would pay 14 hours of overtime.

And what if Lisa works one long 14-hour day, then takes the rest of the week off for a well-deserved break?

  • SUN – 0 hours

  • MON – 14 hours

  • TUE – 0 hours

  • WED – 0 hours

  • THR – 0 hours

  • FRI – 0 hours

  • SAT – 0 hours

Well, she didn't exceed the weekly overtime limit for Week 4, but she did go over the daily overtime limit, and that is what is used to calculate pay.

Here’s what her pay would look like on that Monday:

  • Hour 1 through Hour 8 = Regular pay

  • Hour 9 through Hour 12 = 1.5 x regular pay

  • Hour 13 & Hour 14 = 2 x regular pay (California-based employer) or 1.5 x regular pay (other states)

And finally, here’s one more example schedule:

  • SUN – 5 hours

  • MON – 5 hours

  • TUE – 5 hours

  • WED – 5 hours

  • THR – 5 hours

  • FRI – 5 hours

  • SAT – 10 hours

During this workweek, Lisa worked 40 hours total, so she isn’t eligible for any weekly overtime pay. Also, she only exceeded eight hours per day on one day this week.

However, under California rules, since she worked seven consecutive days, she is entitled to overtime for the first eight hours on Saturday, and she is also entitled to double her regular hourly rate for the last two hours worked on Saturday.

Again, all these examples highlighted California's overtime laws. If your company isn't based in California, or if you operate in more than one state, then there will be different sets of requirements you need to follow. Check out the State Minimum Wage Laws page from the U.S. Department of Labor (DOL), which provides a helpful starting point to figure out the overtime requirements for the states where you may have employees. It's also best to consult with your legal counsel to make sure you understand what is required in the states and localities where you have employees.

Tips for Avoiding Overtime Pyramiding

Here are some tips to avoid pyramiding overtime in your payroll calculation.

  • Remember that if an hour is paid at the daily overtime rate, the same hour should not be used again when calculating weekly overtime pay.

  • Remember that overtime should be paid according to whichever number of overtime hours worked for a workweek is greater.

  • Use a reliable and easy-to-use overtime tracker to make sure that your employees are recording their hours correctly.

Tools that properly and accurately track overtime hours can be a valuable solution for avoiding these costly mistakes. The right solution will help you accurately pay your employees their overtime, every time. Sign up for a free 30-day trial of Justworks Hours to see how we can help your business with your time tracking needs.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.