QuickBooks Payroll – Straight Time, Overtime, Double-time..Oh My

QuickBooks Payroll services have come a long way over the course of its lifetime, however, one thing that is still sadly lacking is the fact that tracking straight time, overtime, double-time and even weighted-average overtime must still be done through manual calculations by whoever is responsible for issuing employee paychecks/payroll.

Every business owner, no matter what state their business is located in, is required to pay their “non-exempt” employees both a regular straight time rate of pay and overtime at a rate of not less than 1 ½ (time and one-half) of their regular rate of pay.

The complexity of payroll varies from company to company – some businesses are lucky enough to have only a few employees who never work overtime; but four things are certain no matter how big or small you are:

  • Payroll costs are a major part of a company’s operating expenses
  • Payroll mistakes are costly – not only to the company in the form of actual money, but also in employee moral
  • Payroll is a critical piece of your business
  • No matter how tight your cash flow, payroll and payroll taxes should be the first things you pay

Construction contractors, both General Contractors and Subcontractors, can have some of the most complex payroll situations – especially if they work on prevailing wage/public works projects.  Payroll clerks in the construction industry deal with:

  • Employees who fall under one or more work classifications, pay rates, and possibly fringe benefit rates
  • Tracking bona-fide plan or Union fringe benefit contributions
  • Overtime, double-time or perhaps even weighted-average overtime calculations

While Intuit has implemented many payroll enhancements in the last few years to help business owners and payroll clerks with their payroll and job costing needs – calculating overtime, double-time, and possibly even calculating weighted-average overtime is still very much a manual process that is highly error prone and can often be far more complex than most employers and payroll clerks initially think.

A common misconception is “ok, so I pay Joe $10.00 per hour, when he works overtime its $15.00….and that’s it!

In reality, it may not be quite that simple, let’s look at some examples:

  1. 1.    Single rate of pay for all hours worked on a specific job with no other types of compensation paid to the employee.

This is truly the most simple and straightforward method of calculating overtime, because, indeed, if you pay Joe $10.00 per hour straight time then his half-time rate is $5.00 (total of $15.00) for any hours that he works over 8 hours in a day or 40 hours in a week – depending upon the requirements of your state.

However, as the payroll clerk enters the hours into QuickBooks they must manually indicate what hours are straight time and what hours are time and one-half so that Joe’s paycheck will be calculated correctly – this is done by having payroll items for both Straight Time and Overtime – each having the appropriate rate of pay assigned to it and selecting the appropriate payroll item and entering the correct number of hours.

  1. 2.    Calculating regular (and overtime) rates of pay for two or more different jobs with different rates of pay.

When Joe works on two or more jobs for you in a single workweek AND those jobs each have a different rate of pay – then the regular rate of pay for that week is the weighted-average of these rates; for example:

Joe works a total of 45.5 hours

Job A – 25 hours at $10.00 per hour

Job B – 20 hours at $15.00 per hour

The following calculation must be made by the payroll clerk before even entering hours into QuickBooks:

  1. 1.    (25 hours x $10.00 per hour =) $250.00 PLUS (20.5 hours x $15.00 per hour =) $307.50 = $807.50 Straight time earnings.
  2. $807.50 straight time earnings divided by 45.5 hours worked = $17.75 weighted-average rate of pay
  3. $17.75 weighted-average rate of pay x 0.5 x 5.5 overtime hours = $48.81 additional half-time pay
  4. $807.50 straight time earnings PLUS $48.81 additional half-time earnings = $856.31 gross wages for the week

Many employers will choose to pay Joe at an hourly rate of not less than 1.5 times the regular rate of pay for each respective job, just to ease the administrative burden of having to perform the above calculations for each employee – but that might not satisfy the weighted-average overtime requirements established under the Fair Labor Standards Act http://www.dol.gov/whd/overtime_pay.htm

Wouldn’t it be wonderful if you could just enter your overtime requirements into QuickBooks, enter employee time as just the total number of hours they worked per day and then have QuickBooks do all the calculations for you automatically?  While QuickBooks by itself cannot provide you with this sort of functionality, there is a third party integrated application that will – learn about Crew/Overtime Entry Solution http://www.sunburstsoftwaresolutions.com/overtime-entry-product-details.htm by Sunburst Software Solutions, Inc.

*Overtime, double-time, and weighted-average overtime laws are complex and cannot be thoroughly discussed in a single blog post, so many of the finer details have not be delved into – check your local “Department of Labor” website for Overtime laws specific to your state, for a complete listing of Wage & Hour Division offices visit http://www.dol.gov/whd/america2.htm .

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© 2012, Nancy Smyth. All rights reserved.

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  1. June 25, 2012    

    Very cool article. This really gets it down to brass tax and all that. Thank you for the detailed explanation.

  2. June 25, 2012    

    Hi Wendy, glad you found this article helpful.

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