Shop overtime pay: 4 steps from hours to payroll

Key takeaways

• Check every shift before adding the weekly hours.
• Weight different pay rates by the hours worked at each rate.
• Separate straight-time pay from the extra overtime amount.
• Check the calculation before recording it on payroll.

The harder questions are which hours count toward overtime, and which pay rate applies when one person works at two rates in the same week. Picture a stock counter who also closes the till, on different shifts, at a different rate. This post walks through four steps for working out overtime pay from that weekly total.

For a manager, the goal is a figure you can explain to the person who worked the hours. Using the same four steps each week makes that explanation simple, because every figure traces back to the log.

The figures come from the Oregon Bureau of Labor and Industries overtime page. The rules and numbers in this post are Oregon's, and they apply to work in Oregon. Other places set their own rules, so check the rules that cover your shop before you use these steps to pay anyone. Ask your payroll representative to confirm the details.

Total each person's hours for the workweek

Total each person's hours for one workweek, because Oregon's guidance measures overtime against the workweek. Pick a workweek with a fixed start day and a fixed end day, and use the same one for everyone on your list. A fixed period keeps the count consistent from week to week and makes it easier to check later.

The Oregon guidance states the test in one sentence: "If it’s more than 40 hours in the workweek, you should get overtime pay." ( Oregon Bureau of Labor and Industries)

Start with a shift log. For each shift, write down the date, the start time, the finish time, and any break that was not paid. Log every shift, including a short early shift for a stock count and a late shift that closes the till. Then add up the hours for the workweek. Before you add, check that each shift falls inside the workweek you picked. A shift on the wrong side of the workweek boundary changes the total, and every overtime figure that depends on the total. For closing shifts, also review the closing-time hours and overtime checks.

Keep the log in the same place every week. A notebook, a shared sheet, or a timekeeping system can all work, as long as the entries are complete and dated. Ask each person to read over their own entries before the week closes. A quick check at that point catches a missing shift before anyone is paid on the wrong total.

When a workweek is still open and a shift is added late, record it under the workweek it fell in, not under the week when you noticed it. Moving hours between weeks to make a total come out differently is the kind of change that makes a record hard to trust later.

If the total is more than 40 hours, go on to step two. Before you decide that a total is 40 hours or less, check the log again for a missing shift, because one missing shift can move the total across the 40-hour line.

Find one average rate when the pay rates differ

When one person is paid at two rates in the same week, divide the total straight-time pay by the total hours to get one weighted average rate. Do not average the two rates directly, because the hours worked at each rate carry different weight in the total.

Decide which rate applies to which kind of work before the week starts, and write that rate on the log beside each shift. A stock count and a till shift may carry different rates, and a log that records the rate with each entry makes the straight-time total much easier to build.

The Oregon guidance works through a short example: "EXAMPLE: If an employee worked 16 hours at $18.00 per hour and 30 hours at $20.00 per hour the total straight time amount earned is $888.00." ( Oregon Bureau of Labor and Industries)

The same guidance then divides that amount by the total hours: "That amount is divided by total hours-worked (46), and the weighted average hourly rate is $19.30." ( Oregon Bureau of Labor and Industries)

The average sits closer to $20.00 than to $18.00, which fits the hours. Of the 46 hours, 30 were paid at $20.00, so the higher rate carries more weight. Looking at the average this way is a quick sense check on the answer before you go any further.

Use the same method on your own figures. Start with the hours at the first rate and multiply them by that rate. Do the same for each other rate. Add those amounts together to get the straight-time total. Then divide the straight-time total by all of the hours together, and round the average to cents, as the example does.

Check the answer by multiplying the average by the total hours. The result should be close to the straight-time total. A small gap can come from rounding the average, and by itself it does not mean the method is wrong. If the gap is large, go back over the hours and rates for each shift.

Work out the overtime pay for hours over 40

For a person paid at two rates, the extra half of the average rate goes on top of the straight-time pay already recorded. The guidance puts the rule this way: "Payroll records must reflect overtime pay of 1.5 times that rate for hours over 40 in a workweek." ( Oregon Bureau of Labor and Industries)

For a person paid at one rate, the calculation is direct. The guidance gives this example: "If you make $18.00 per hour, your overtime rate is $27.00 per hour." ( Oregon Bureau of Labor and Industries)

For a person paid at two rates, the Oregon example uses the average rate and starts from the straight-time pay already paid: "Since the employer has already paid the straight time rates for all hours worked, only an additional .5 times the average hourly rate is due for the overtime hours (.5 x $19.30 x 6 hours = $57.90)." ( Oregon Bureau of Labor and Industries)

Because the straight-time pay is already on the record for every hour, the example adds only the extra half and does not add straight time a second time. That is the point to keep in mind when you check your own figures.

Work through it in three moves:

1. Count the hours over 40. In the example, the total is 46 hours, so 6 of them are overtime hours.
2. Take half of the average rate. In the example, that is half of $19.30.
3. Multiply that half by the overtime hours, and add the result to the straight-time pay already recorded. In the example, the extra amount is $57.90.

Use the same three moves on your own figures. Keep the overtime hours and the overtime pay on separate lines of the record, so anyone who checks the pay can see both the count and the amount.

Record the rate, hours, and overtime pay on payroll

Put the hours, the rate, the overtime hours, and the overtime pay on each person's pay record, so the figures can be checked later.

Before you pay, run these checks:

• The total hours equal the sum of the shift log, with no shift left out.
• The overtime hours equal the total hours minus 40, for a total that is more than 40.
• Each rate matches what the person is actually paid for that work.
• The average rate and the overtime pay have been worked out again on a calculator or in a spreadsheet.
• A second person has checked the first few weeks of any new calculation.

Show each person their own figures in the same format every week. When the layout stays the same, a question about one week is easy to answer by pointing to the same lines as the week before. Tell staff early if the format changes, so nobody is surprised by a new layout on payday.

Keep the shift log with the pay records. If someone asks how a figure was reached, the log and the calculation should answer the question without anyone having to rebuild it. For related filing decisions, see the shop record retention guide.

If a figure looks wrong when you check it, do not adjust the total to fit what you expected. Go back to the log, find the shift or rate that does not match, and correct that entry first. Then run the steps again from the top, so the final figure comes from the corrected record.

Illustrative example: checking the weekly total

Adding them gives 40 hours. The total does not exceed the Oregon workweek threshold, so this example has no overtime hours. Check that both entries belong to the same workweek before recording that result.

Use a spreadsheet to check the arithmetic

A spreadsheet can check the arithmetic in steps two and three, as long as each formula follows the method above. Use one row for each person and rate, with columns for the rate, the hours, and the straight-time amount, which is the rate times the hours. Then add a summary row for each person with the total hours, the total straight-time amount, the average rate (the straight-time amount divided by the total hours), the overtime hours (the total hours minus 40, and never below zero), and the extra overtime pay (half the average rate times the overtime hours).

Without rounding, the extra pay can differ from the example by a small amount, which can make a correct sheet look wrong. Lock the cell that holds the 40-hour threshold, so nobody changes it by accident.

Test the sheet before you rely on it. Enter the Oregon example for one person: 16 hours at $18.00 and 30 hours at $20.00. The sheet should show straight-time pay of $888.00, an average of $19.30, 6 overtime hours, and extra overtime pay of $57.90. If it does not, check the formulas before you use the sheet on real pay.

Save a copy of each week's sheet with that week's shift log. The copy lets you rerun the same numbers later, which matters most when a staff member asks about a past pay date.

Three mistakes to check for

The three mistakes to check for are averaging the rates directly, counting hours by day instead of by workweek, and leaving out short shifts. Each one changes the answer, and each one is easy to miss when the week feels routine.

Averaging the rates directly is the first. Taking $18.00 and $20.00 and averaging them gives a figure that ignores how many hours were worked at each rate. The Oregon example weights the rates by hours, which is how it arrives at $19.30 from 46 hours.

Counting by day is the second. A day-by-day list of hours can be useful for the log, but the total you compare with 40 is still the one for the whole workweek.

Leaving out short shifts is the third. A short early shift for a stock count, or a brief evening shift at the till, can look too small to log, yet it adds to the total. One missing shift can change whether the total is more than 40 hours, and it can change the overtime figure too.

What these steps do not cover

These four steps do not cover every pay question, and they do not replace the rules where you work. The Oregon overtime page explains the examples used here, so read it in full before you rely on any figure.

This post does not address:

• Rules in other places, which may differ from Oregon's.
• Taxes, deductions, and benefits.
• Breaks, rest periods, and other working-time rules.
• A rate change in the middle of a workweek. This post does not explain how to calculate that case. Note the date each rate starts, and ask your payroll representative how to handle it before you calculate the week.

Today, work through these steps with a real week of hours, on paper or in a sheet. Compare the result with the shift log before using it for payroll.

Questions about shop overtime

What should I check if the total looks wrong?

Check the shift dates, hours, and rates against the log first. Correct the entry that does not match, then calculate again.

How can I check a new spreadsheet?

Test it with the Oregon example before using it on real pay. Compare its results with the straight-time total, average rate, overtime hours, and extra pay shown above.