Overtime Pay: The Basics You Need to Know

Federal overtime regulations are established by the Fair Labor and Standards Act (FLSA), which states all non-exempt employees must be paid at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Individual states may have differing overtime laws, such as a daily threshold, in which case employers must follow the law that is most favorable for the employee.

A workweek is a fixed 7 day period determined by the employer. It does not need to be a calendar week, but must be 7 consecutive days, even if the employer does not operate 7 days a week. If employees are paid on a weekly or biweekly basis, it is recommended an employer's workweek match their pay period, to make overtime calculation easier. This is not a concern for employers paying on a semi-monthly or monthly basis because they will inevitably have to account for hours worked in previous pay periods when calculating overtime pay.

Example: An employer's workweek starts on Sunday and the current pay period starts on Wednesday. Susie works 8 hours a day Monday through Thursday, and 10 hours on Friday, for a total of 42 hours. For the current pay period, Susie will need to be paid 24 hours at her regular rate, and 2 hours at one and a half times her regular rate. Even though the first 16 hours were paid on the previous payroll, they must be included in the current pay period's overtime calculation because they were worked in the current workweek.

Employers can change their workweek if the change is intended to be permanent and not an attempt to evade overtime law. If an employer decides to transition from semi-monthly to biweekly payroll and wants to align their workweek with their new biweekly pay periods to make overtime calculation easier, that would be an acceptable change of workweek.

Overtime applies to hours worked only, so time paid but not worked is not included in the calculation. For example, if an employee works 35 hours and takes 8 hours vacation in one workweek, they will be paid for 43 hours at their regular rate of pay. None of those hours are considered overtime because the hours actually worked did not exceed 40.

Some employees may qualify for exemption from overtime laws if they meet certain qualifications. The most common exemptions are for executive, administrative, professional, and outside sales employees. For most of these exemptions, the employee must earn a salary of more than $455 per week and meet the duties tests for that profession. The Department of Labor provides fact sheets outlining the tests for each exemption.