Salaried employees receive a guaranteed amount of wages each pay date. But hourly employees are paid according to number of hours worked. Employees who perform additional work outside of their regularly scheduled hours may or may not qualify for overtime pay. Under the Fair Labor Standards Act, nonexempt employees qualify for overtime pay. Exempt employees are exempt from FLSA overtime requirements, but the employer can pay them overtime if it wants to . Most hourly employees are nonexempt and the majority of salaried employees are exempt.
Compare the federal overtime law with your state law (if applicable). The FLSA is the federal overtime law, and many states have their own laws that give employees more rights. Check with your state labor department for your state overtime laws.
Pay overtime hours at the federal rate of one-and-one-half times the employee's normal pay rate for hours exceeding 40 for the workweek. The employee must actually work more than 40 hours for the workweek to qualify for overtime pay. Therefore, if he works 37 regular hours and takes eight sick hours, pay all 45 hours at his regular pay rate.
Compensate overtime pay according to state law. For example, California requires employers pay overtime at one-and-one-half times the employee's normal pay rate for hours exceeding eight, up to 12 hours for the workday; and for the first eight hours worked on the seventh consecutive day of the workweek.
Pay double time wages, if applicable. Federal law does not require employers pay double time for hours worked on weekends or nights; this is entirely up to the employer. Some employers choose to give double time pay for hours worked on holidays. State law may have double time requirements. California requires double-time pay for work hours exceeding 12 in the workday and for hours worked that exceed eight on the seventh straight day of work in the workweek. Pay double time at twice the employee's regular pay rate.
Calculate shift differential for hours worked outside of daytime shifts. This practice is more common in industries that are open 24/7 such as hospitals, manufacturing and retail. Determine the percentage you want to designate as shift differential. For example, you can give employees who work the second shift a shift differential of 10 percent of the employee's base pay and a higher percentage to third shift employees.
Suppose the employee earns $10 per hour and the shift differential for the night shift is 20 percent. The shift differential would be $10 x .20 = $2 per hour. This employee would earn $12 per hour for hours worked during the night shift.