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Payroll Management: How is Double Time and Overtime Pay Calculated?

When you’re running a business, payroll management becomes one of your primary responsibilities. In simple words, payroll management refers to a set of processes that keep a list of the number of employees in an organization, track their individual working hours, and calculate their salary vis-à-vis the number of hours an employee has worked. If you’re working in the HR department or finance department of a company, you know that payroll calculation and payroll processing is of the utmost importance.

From the employees’ point of view, payroll calculation is the reward they get at the end of every month for their work and dedication to the company. Any delays or error in this can bring down employee morale and productivity. In the competitive job market, a streamlined payroll system helps boost the credibility of an organization.

How to Calculate Payroll?

Payroll for a full-time salaried employee is calculated based on the number of days they have worked in a month and their working hoursfor each week. Most companies nowadays have adapted to automated attendance andtime sheets, which makes the payroll processing at the end of the month easier and error-free.

When it comes to calculating payroll, the working hours calculated fall into four main categories:

  • Full-Time Work Hours

There is no specific numbers of hours set for full-time working hours. Thus, it can be decided as per the discretion of a company. But the labor law sets a limit on the maximum number of working hours allowed in a week. A full-time employee is not required to work for more than 40 hours in a week. Any additional hours would result in overtime and a special compensation rate. But since there is no definition of full-time working hours, different organizations follow different working hours. For example, one company can have 32 working hours per week, while another company might follow a 38-hour week. Both are legal and allowed. The only thing to remember here is that the working hours should not exceed 40 hours per week.

  • Part-Time Work Hours

There are no set guidelines on what constitutes part-time working hours. This usually varies from company to company and is decided on the sole discretion of the employer. Part-time employees usually work only half the hours as that of full-time employees. So if an organization follow 36-hours working week, then their part-time working hours shall be between 16 to 18 hours per week. Since there is no law stating the rules for part-time working hours, they vastly vary in different companies.

  • Overtime

As stated above, 40 hours is the maximum number of hours an organization can ask their employee to work for. Any additional time that exceeds the weekly limit of 40 hours is counted as overtime. Employers are required by law to pay their employees with extra compensation if they have worked overtime. As per California Overtime Law, the employer must pay one and one-half times more thantheir employee’s regular hourly wage for overtime. To demonstrate with an example, if an employee is earning $10 per houras their regular wage, then the overtime pay would be $15 per hour (calculated as $10 x 1.5).

  • Double Time

Double-time working hours refer to situations where the employer is required to pay double the regular pay rate of their employees. This usually comes into effect when the company is under extreme workload pressureand requires employees to work more than their usual hours. The California Overtime Law clearly stipulates thatemployees shall receive twice their normal pay in either of the two scenarios:

  • If an employee has worked for more than 12 hours in a single work day
  • If an employee has been working for more than 8 hours on their seventh consecutive day

Understanding California Overtime Law

When it comes to payroll processing, understanding which employees are eligible for overtime or double-time pay is a crucial part of the process. To get a deeper understanding of this, it is important to familiarize yourself with the California Overtime Law which is followed by many big corporations and small and medium businesses.

Who is Eligible under the Law?

  • The law includes non-exempt employees who are paid hourly, salary, and those who are paid on piece rate
  • Non-exempt employees who are 18 years of age or older
  • Employees who are between 16-17 years of age, and not required by law to attend school

Who is Not Eligible for the Law?

  • Unionized workers involved in a collective bargaining agreement
  • Workers who hold a specific occupation with overtime rules
  • Employees who are labeled and classified as an outside salesperson
  • Employees who are classified as exempt employees whose primary duties include professional, administrative, or executive roles

Professional Exemption

A professional employee is a person employed in a professional capacity including:

  1. A person who earns more than twice the state minimum wage for full-time employment.
  2. Someone whose job is in medicine, law, optometry, architecture, dentistry, engineering, accounting, teaching, art, and science and does not involve manual labor.

Administrative Exemption

An employee with administrative exemption is employed in an administrative capacity including:

  1. An employee or someone who assists a proprietor or an employee who is employed in an executive or administrative capacity.
  2. Who is under only general supervision, works along specialized or technical lines requiring training, experience or knowledge.
  3. A worker who performs office or non-manual work.
  4. When earning more than two-times the state’s minimum wage.

Executive Exemption

An employee with executive exemption is an employee with executive capacity including:

  1. An individual whose monthly earnings are not higher by 2 times the state minimum wage for full-time employment.
  2. A person who regularly and customarily uses independent and discretionary judgment.
  3. An employee that routinely directs the work of two or more employees/workers.
  4. Responsibilities and duties involving the management of the organization or customarily recognized department or subdivisions in which the employee is employed through.
  5. A person of authority to hire or fire other employees.
  6. Primarily classified to engage in duties that qualify as exemption.

Closing Thoughts

Payroll processing is an integral part of workforce management in any organization. Continuous errors in salary calculation can make them look for other employment opportunities elsewhere. Hence, it is very important to take in the overtime and double-time hours into consideration while doing payroll processing. Minimizing all kinds of errors and delays in payroll calculation and disbursement is crucial in maintaining the credibility of an organization in front of an employee.