Hourly pay and overtime

Hourly gross pay is hours times rate, until an employee works past the overtime threshold. From that point, every extra hour is paid at a higher rate. The arithmetic is simple, but the split between regular and overtime hours is where most payroll errors start. This page explains the split, works through a full week for eight employees, and shows the mistakes to watch for.

Gross pay for hourly employees in plain English

A few terms first:

• Gross pay is what an employee earned for the period before anything is taken out. For an hourly employee, it comes from hours worked and the hourly rate.
• Overtime threshold is the number of hours in a week after which overtime starts. In the example rule used here, it is 40 hours a week.
• Overtime multiplier is how much more an overtime hour pays than a regular hour. In the example rule, it is 1.5, so an overtime hour pays one and a half times the normal rate.
• Regular hours are the hours up to the threshold. Overtime hours are the hours above it.

With those terms, the whole calculation fits in four lines:

1. Regular hours = the smaller of hours worked and the threshold.
2. Overtime hours = hours worked minus the threshold, but never less than zero.
3. Regular pay = regular hours × hourly rate. Overtime pay = overtime hours × hourly rate × multiplier.
4. Gross pay = regular pay + overtime pay.

Notice what the rule does not say. It does not pay every hour at the overtime rate once the threshold is passed. The first 40 hours are always paid at the normal rate, and only the hours above 40 earn the multiplier. Under this example rule, overtime also depends on the weekly total, not on any single long day.

Worked example: Pine Street Dental

Pine Street Dental pays its hourly staff weekly. This is the week ending 2/5/2026. The example overtime rule sits off to the side of the payroll sheet, in its own small table:

Employees are in rows 5 to 12, with the name in column A, hours worked in B and the hourly rate in C. Keeping the rule in its own cells matters. If the rule changes, you change one cell, and every formula that points to it updates.

Step 1: split the hours

Take J. Silva, who worked 44.5 hours at $38.40 an hour.

• Regular hours: the smaller of 44.5 and 40 is 40.
• Overtime hours: 44.5 − 40 = 4.5.

Now H. Ito, who worked 30 hours. Regular hours are the smaller of 30 and 40, which is 30. Overtime hours would be 30 − 40 = −10, but overtime can never be negative, so it is 0.

In a spreadsheet, MIN and MAX handle both cases in one formula each. Regular hours in D5:

=MIN(B5,$O$4)

Overtime hours in E5:

=MAX(0,B5-$O$4)

The dollar signs lock the reference to O4, so it stays on the rule cell when you fill the formula down to row 12. If you want a refresher on why that matters, see absolute cell references in Excel.

Step 2: price the hours

For J. Silva:

• Regular pay: 40 × $38.40 = $1,536.00
• Overtime pay: 4.5 × $38.40 × 1.5 = $259.20
• Gross pay: $1,536.00 + $259.20 = $1,795.20

As formulas, regular pay in D5 is =MIN(B5,$O$4)*C5, overtime pay in E5 is =MAX(0,B5-$O$4)*C5*$O$5, and gross pay in F5 is =D5+E5. Filled down for the whole staff:

Look at F. Larsen, who worked exactly 40 hours. The threshold is "after 40", so all 40 are regular hours and overtime is zero. A good formula gets the boundary right without any special case: MIN gives 40 and MAX gives 0.

Doing it in one formula

Some payroll sheets have a single gross pay column with no helper columns. The same logic still applies. One way to write it is with IF:

=IF(B5>$O$4,$O$4*C5+(B5-$O$4)*C5*$O$5,B5*C5)

Another is to add the two MIN and MAX pieces together: =MIN(B5,$O$4)*C5+MAX(0,B5-$O$4)*C5*$O$5. Both give $1,795.20 for J. Silva. The helper-column version is easier to check, which is why the first exercises use it.

Step 3: from a timecard to gross pay

Real hours usually arrive as a timecard: one row per employee and one column per day. Here is D. Novak's week:

Total the whole week first, Monday to Saturday, with =SUM(B5:G5). Only then apply the overtime rule. D. Novak's 45 hours give 40 regular hours at $17.20 ($688.00) and 5 overtime hours at $17.20 × 1.5 ($129.00), for gross pay of $817.00, the same as the table above. Thursday's 10-hour day does not create overtime on its own under this example rule. Only the weekly total counts.

Why the rule lives in its own cells

It is tempting to type 40 and 1.5 straight into each formula. It works until the rule changes, or until someone reads the sheet and cannot tell where the numbers came from. A labelled rule table makes the sheet self-explaining, and every formula that refers to $O$4 and $O$5 follows a change automatically. The exercises ask you to refer to the rule cells rather than typing the numbers, and they check your results against the rule.

Common mistakes

The exercises check for each of these and tell you which one you made.

Negative overtime for short weeks

Writing overtime hours as =B5-$O$4 works for anyone over 40, but H. Ito's 30 hours give −10 overtime hours, and L. Adeyemi's 33.5 give −6.5. Overtime is never negative. Wrap the subtraction in MAX with zero: =MAX(0,B5-$O$4).

Regular hours that include overtime

Copying hours worked straight into the regular hours column gives C. Okafor 49.5 regular hours. Regular hours stop at the threshold, so the right answer is 40, with 9.5 hours of overtime. Use the smaller of hours worked and the threshold.

Paying overtime at the straight rate

Overtime pay of 4.5 × $38.40 = $172.80 for J. Silva leaves out the multiplier. Under the example rule, each overtime hour earns the rate times 1.5, which gives $259.20.

Counting only the overtime premium

The opposite trap is to pay overtime hours at only the extra half: 4.5 × $38.40 × 0.5 = $86.40. That would be right only if the regular pay column already covered every hour at the normal rate. Here it covers only the first 40 hours, so the overtime column needs the full rate times 1.5.

Paying every hour at the overtime rate

A formula that says "if hours are over 40, multiply all hours by 1.5" gives J. Silva 44.5 × $38.40 × 1.5 = $2,563.20. Only the 4.5 hours above the threshold earn the multiplier. The first 40 hours are always paid at the plain rate.

Ignoring overtime

Plain hours × rate gives J. Silva $1,708.80, which is $86.40 short. It is right only for employees at or under the threshold.

Leaving Saturday off the timecard

Summing Monday to Friday gives D. Novak 43 hours instead of 45, and gross pay of $765.40 instead of $817.00. The week in the exercises runs Monday to Saturday, so add all six day columns before working out overtime.

How to check your hourly payroll

• Regular hours plus overtime hours equal hours worked, on every row.
• No regular hours figure is above the threshold, and no overtime figure is below zero.
• Anyone at or under the threshold has gross pay of exactly hours × rate.
• For anyone over it, gross pay minus hours × rate equals the overtime hours × rate × (multiplier − 1). For J. Silva: $1,795.20 − $1,708.80 = $86.40, and 4.5 × $38.40 × 0.5 = $86.40.

Gross pay is only the first step of payroll. To go from gross to net with example deductions, see payroll calculations in Excel, and to record the result in the books, see payroll journal entries. Salaried staff are covered in salary per pay period, and sales pay in commission calculation.