How do you calculate overtime pay in Alabama?

Calculating overtime pay in Alabama can be challenging, especially with varying rules for different employee payment structures. Understanding how overtime is calculated is essential for both employers and employees to ensure compliance and fairness.

This article provides a comprehensive guide on calculating overtime pay, covering the specific methods and overtime calculations for hourly, salaried, piece rate, and commission employees.

Which Overtime Laws Apply in Alabama?

Alabama has no state-specific overtime laws, meaning that state overtime is governed by the Fair Labor Standards Act (FLSA). This federal law sets the guidelines for overtime compensation. Under the FLSA, non-exempt employees are entitled to overtime pay for any hours worked over 40 in a workweek.

The overtime rate must be at least one and a half times the employee’s regular rate of pay. For example, if an employee’s regular wage is $18 per hour, their overtime rate would be $27 per hour.

Overtime hours are only required for hours exceeding 40 in a week, regardless of whether those hours were worked on weeks, nights, or holidays. The FLSA defines a workweek as a fixed, recurring period of 168 hours consisting of seven consecutive 24-hour periods.

How Much is Overtime Pay in Alabama?

Overtime pay in Alabama is determined by the FLSA, which requires employers to pay non-exempt employees an overtime rate of one and a half (1.5) times their regular rate of pay for any hours worked over 40 in a workweek.

To learn more, check out our guide on Alabama Overtime Laws. 

Who is Eligible for Overtime Pay in Alabama?

The FLSA governs overtime pay eligibility in Alabama. Under the FLSA, non-exempt employees are eligible for overtime pay for hours worked over 40 in a workweek. Non-exempt employees are typically those who are:

• Paid hourly: Generally, hourly employees are considered non-exempt and must receive overtime pay for any hours worked over 40 in a week.
• Perform non-exempt tasks: Employees performing tasks that do not fall into the executive, administrative, or professional criteria defined by the FLSA. This includes clerical tasks, customer service, manual labor, and other similar positions.

Check out our guide on Overtime Rights in Alabama.

Hourly employees in Alabama are paid based on the number of hours they work instead of receiving a fixed salary. To calculate overtime pay:

• Determine the regular rate of pay: This is the hourly wage the employee is paid. For example, if the employee earns $15 per hour, their regular pay rate is $15.
• Calculate overtime rate: The overtime rate is 1.5 times the regular rate of pay. If employees earn $15 per hour, their overtime rate would be $22.50 per additional hour.
• Identify overtime hours: Overtime is calculated for any hours over 40 in a single workweek. If the employee works 45 hours a week, the overtime would be 5.
• Calculate the overtime pay: Multiply the overtime rate by the overtime hours. Employees who worked five overtime hours would earn $112.50 ($22.50 x 5) in overtime pay.

Read our guide on Your Rights as an Hourly Employee in Alabama to learn more.

Salaried employees in Alabama may be eligible for overtime if classified as non-exempt under the FLSA.

To calculate overtime for non-exempt salaried employees, their weekly salary is first divided by the total number of hours they typically work in a week to determine their regular hourly rate. If no set number of hours is specified, the FLSA assumes a 40-hour workweek. Once the regular hourly rate is established, any hours worked beyond 40 in a workweek must be compensated at 1.5 times the regular rate.

For example, if salaried employees earn $800 per week and work 40 hours, their regular hourly rate would be $20. If they work 50 hours a week, the ten additional hours must be paid at the overtime rate of $30 ($20 x 1.5). Therefore, the employee would receive a regular salary of $800 plus $150 in overtime pay for the extra hours worked.

Check out our guide on Your Rights as a Salaried Employee in Alabama.

Commission employees receive a mix of hourly wages and commissions and are entitled to overtime pay. To calculate overtime for commission employees:

• Determine the regular rate of pay: A commission employee’s regular rate of pay is determined by adding their total earnings (commission plus any base pay) for the workweek and dividing it by the total number of hours worked during that week.
• Calculate the overtime rate: Once the regular rate is determined, multiply it by 1.5 to get the overtime rate. The overtime rate of a commission employee may fluctuate as the commission is factored into weekly earnings.
• Determine the number of overtime hours: Any hours worked over 40 a week are considered overtime hours.
• Calculate the overtime pay: Multiply the overtime hours by the overtime rate.

If a commission employee receives $700 weekly and earns $100 in commissions for the week, the commission employee has a total earnings of $800. If the employee works 50 hours, their regular hourly rate would be $16 per hour ($800 / 50). For the ten overtime hours (50 – 40), the employee must be paid $24 per hour ($16 x 1.5). So, for the overtime hours, the employee would receive $240 ($24 x 10) in overtime pay.

Piece rate employees are paid per unit produced or task completed. To calculate overtime for piece rates employees:

• Determine the piece rate: Identify the rate the employee is paid per unit of work completed, such as per item produced or task completed.
• Calculate the total earnings: Multiply the number of units completed by the piece rate to find the employee’s weekly earnings.
• Calculate the regular hourly rate: To determine the regular hourly rate, divide the total earnings by the total number of hours worked in the workweek. If an employee earns $800 and works 50 hours, their regular hourly rate would be $16 per hour ($800 / 50).
• Determine the overtime rate: Multiply the hourly rate by 1.5 to find the overtime rate. For a $16 hourly rate, the overtime rate would be $24 per overtime hour.
• Identify the number of overtime hours: All hours worked beyond 40 a week are considered overtime. If an employee works 50 hours, the overtime hours would be 10.
• Calculate overtime pay: Multiply the overtime rate by the number of overtime hours. From the example above, if the employee worked an additional 10 hours, the employee would receive $240 ($240 x 10) in overtime pay.

In Alabama, the statute of limitations for claiming unpaid overtime follows the federal guidelines under the FLSA. The standard statute of limitations is two years from the date the unpaid overtime was due. However, if the violation is found to be willful, such as the employer knowingly or recklessly disregarding the law, the statute of limitations can extend to three years.

This means that, depending on the nature of the violation, employees in Alabama have two or three years from the date of the alleged violation to file a claim for unpaid overtime.

Recordkeeping requirements for overtime wage compliance in Alabama follow federal guidelines under the FLSA. Employers must maintain accurate records of all employees covered by the FLSA, including those who work overtime. Key recordkeeping requirements include:

• Employee information (Full name, social security number, address, occupation).
• Work hours (daily and weekly hours worked, including the time the workweek begins, as well as regular work schedules).
• Total wages earned during each pay period (Regular hourly rate, overtime compensation including overtime hours worked, and the corresponding overtime pay).
• Pay dates and periods (The date wages are paid and the specific pay period covered).
• Deductions and additions (Any deductions or additions to wages, such as for taxes, benefits, or other withholdings).

Employers should ensure these records are accurate and accessible, as failure to comply with recordkeeping requirements can result in penalties and challenges during wage disputes. To ensure compliance with overtime wage regulations, employers can use any timekeeping method, such as manual records or automated time and attendance software.