How is overtime calculated in construction? A step-by-step guide

Long days come with the territory for construction workers. Projects run on fixed deadlines, weather eats into schedules, and phase dependencies can cause compounding delays. For contractors, that means managing overtime compliance and compensation is a critical payroll function.

Office teams calculating overtime must manage state and federal laws, multiple pay rates, and (when applicable) union rules. Following all these requirements is a careful balancing act that requires accurate time tracking and precise payroll management. 

In this guide, we’ll discuss how overtime is calculated and what regulations construction companies need to follow.

What is overtime pay?

Overtime is the extra pay non-exempt employees receive for any additional hours they work past a predetermined limit in a set period. The Fair Labor Standards ACT (FLSA) governs the standard federal regulations, which state:

• Employees require overtime pay when they work more than 40 hours in a week.
• The overtime rate must be at least 1.5x the employee’s regular pay rate.

While the Department of Labor enforces FLSA rules, some states have their own provisions that impact how to calculate overtime and who qualifies. And unions also set rules that affiliated contractors must adhere to. 

Construction companies have to follow the strictest applicable regulations, but they can write their own policies, too. Say employers only have to pay employees 1.5x their regular rate for overtime hours. To improve retention, a company could decide to offer double pay for weekend overtime hours.

Not every employee is eligible for overtime pay. Workers can be either exempt or non-exempt, and overtime is only granted to non-exempt employees. The government bases these classifications on how employers pay each worker’s duties and type of income. Here’s a quick summary:

• Exempt: Salaried workers, typically those who work in high-level, non-physical roles (e.g., administrators, executives, office managers)
• Non-exempt: Hourly workers, typically those who work in hands-on labor (e.g., laborers, carpenters, electricians)

Misclassifying a worker can result in serious penalties, and companies could owe back pay and face legal action if they deny non-exempt employees overtime.

How does overtime work?

Broadly, paying overtime involves tracking employee hours and, for extra hours, multiplying the base rate by time-and-a-half. But it’s not always that simple. Managing overtime in the construction industry can be more complex due to a few factors:

• Multiple overtime rules: Federal rules, state provisions, and local laws can differ in terms of when overtime triggers and how to calculate it. Though federal and state overtime laws differ and even conflict, employees are protected by the law that is most favorable to them.

• Union agreements: Collective bargaining agreements (CBAs) may introduce additional overtime requirements like call-back pay and shift differentials (e.g., premium pay for weekends, holidays, or nights).

• Blended overtime for multiple jobs and pay rates: Construction employees often switch tasks and travel to different jobsites in the course of one workweek. Different classifications and jurisdictions can have contrasting pay rates, which means employers have to calculate overtime based on an average of their total pay for the week under the FLSA.
• Prevailing wages and certified payroll: Federally funded construction projects are subject to Davis-Bacon and prevailing wage laws, which can affect overtime calculations depending on whether contractors pay fringes in cash or a bona fide benefit plan.

It’s safe to say that overtime payroll can be a headache for construction office teams. Luckily, the right platform helps teams sidestep the messy details and pay employees properly every time. Miter’s payroll software calculates blended rates for workers with multiple pay rates, applies state-specific overtime rules for states like CA, CO, and NV, and supports configurable thresholds at the job, union, or company level.

How to calculate overtime pay

Here are the foundational steps to calculate overtime pay in construction.

1. Confirm overtime eligibility.

First, determine which employees aren’t eligible for overtime pay. FLSA considers employees exempt if they meet both of the following criteria:

• Salary basis: Employees must earn at least $1,128 weekly or $58,656 annually.
• Duties: Employees can’t be in an executive, administrative, or learned professional role.

These rules apply to FLSA regulations, but the thresholds may be different depending on which states contractors operate in.

2. Identify applicable overtime rules.

Check CBAs, company policies, and state laws that impact overtime calculations, and apply them when required. For example, when processing union payroll, teams might need to add double time on Sundays.

If companies manage public works projects, they’ll also need to consider Davis-Bacon overtime rules. Employers must apply fringe benefits to every hour worked, including overtime, but don’t multiply fringes by time-and-a-half.

If there are no exceptional overtime rules to manage, simply go by federal rules.

3. Track total hours.

Track all hours worked during the pay period, including time across different projects, activities, and pay rates. This can get complex fast when workers move between job classifications, work types, or locations, all of which can carry different rates.

Contractors need accurate field data to calculate proper compensation and stay compliant. Traditionally, teams rely on field crews updating timesheets, but this leaves room for human error.

With the right software, teams can skip the manual entry and get reliable numbers every pay period. Miter offers eight different clock-in methods, including mobile, kiosk, and supervisor entry. Miter Time Tracking automatically ties hours to locations, classifications, and activities. Time data syncs to Miter Payroll, which calculates pay and overtime rates, eliminating manual entry and ensuring accuracy.

4. Apply daily and weekly overtime thresholds.

Federally, overtime kicks in after 40 hours. But there are state-specific overtime laws that may require different daily or weekly thresholds.

For example, in California, overtime triggers after eight hours in a workday. So, if a California-based employee works 10 hours in a day, employers would have to pay them the overtime rate for two extra hours, regardless of their total weekly hours.

Organizations also need to factor in union rules and company policies, when applicable.

5. Choose an overtime allocation method.

There are two main overtime allocation methods:

• The in-effect method: This approach applies overtime to hours worked after the daily or weekly threshold has been met.

• The weighted average method: The weighted average method calculates a single blended regular rate for the week from all hours and earnings, then uses that rate to calculate overtime for all overtime hours. Employers often use it for employees with varying rates in the same day or week. 

No matter the method used, Miter offers a helping hand. The weighted average approach can be particularly tricky to do manually, but Miter calculates total hours, spreads them across timesheets, and pays regular and overtime rates automatically.

6. Determine the overtime rate.

Verify the overtime rate for each worker. This is straightforward with in-effect but a bit more complex with weighted average calculations. 

First, multiply the person’s hours worked by their respective pay rates and add these numbers together. Then, divide that sum by the total hours worked to get the blended regular rate. Take the blended rate, and multiply it by time-and-a-half to determine the overtime rate.

7. Calculate final overtime pay.

Now, find the final number. Let’s say a contractor needs to calculate overtime for an employee earning a base rate of $35/hour who worked 46 hours over the course of a work week. Here’s the result using the basic overtime pay formula:

• Overtime rate: $35 x 1.5 = $52.50
• Overtime hours: 46 − 40 = 6
• Total overtime pay: $52.50 x 6 hours = $315

This is a basic calculation, but overtime isn’t always time-and-a-half. Factors like state and union rules must be considered, too. Say a union requires employers to pay 2x employees’ base wages for each hour of overtime. In this instance, a union worker making the same base rate would earn $420 for six hours of overtime.

Track overtime accurately with Miter.

With complexities like multiple pay rates and union rules, calculating construction overtime is tricky. There’s a lot to manage, and relying on manual entry isn’t just time intensive; it risks non-compliance. Luckily, the right platform connects hours and job context, factors in unique pay rates, and applies the proper overtime every time.

Miter brings time tracking, payroll processing, and job costing into one place. It collects hours straight from the field, considering the job, activity, and worker classification. Miter factors in prevailing wage requirements, union rules, and state and federal regulations, automatically applying the right overtime rules and calculating gross pay for every employee. The result: accurate paychecks, less time spent on payroll, and fewer compliance risks.

Frequently asked questions

How much is overtime pay?

Standard overtime pay is time-and-a-half an employee’s base rate. For example, an employee making $40/hour earns $60/hour for overtime hours. However, this rate may change depending on union rules and local laws.

Can you average hours across multiple workweeks to avoid overtime?

No, the FLSA forbids this. Employers must treat each workweek as an independent period. According to the FLSA, it doesn’t matter how much an employee worked last week; if they pass the 40 hour threshold this week, then companies must pay overtime.

When should you pay overtime, and what records should you keep?

Companies need to pay overtime with an employee’s regular paycheck, which they usually issue weekly or every two weeks. A general recommendation is to keep payroll records covering the last three years. These documents should clearly detail daily and weekly hours, rates of pay, and total earnings