Overtime looks simple on paper: work more than 40 hours, get time and a half. In practice, it is one of the most common sources of wage claims against small businesses. The mistakes are rarely intentional. A bonus left out of the overtime calculation, a salaried coordinator who does not actually qualify as exempt, a California employee who works three 11-hour days and nobody notices the daily overtime. Each one adds up, and back-pay claims can reach back years.
Here is what employers need to know about federal overtime rules, the states that go further, and how to calculate overtime correctly.
The federal baseline: the FLSA
The Fair Labor Standards Act (FLSA) requires covered employers to pay non-exempt employees at least one and a half times their regular rate of pay for all hours worked over 40 in a workweek. A few core rules follow from that:
- The workweek is fixed. It is any fixed, recurring period of seven consecutive 24-hour days (168 hours). You choose when it starts, but you cannot change it to dodge overtime.
- No averaging. Each workweek stands alone. You cannot offset 45 hours one week with 35 the next, even within the same pay period.
- Federal law has no daily overtime. Under the FLSA alone, a 12-hour day does not trigger overtime if the week stays at or under 40 hours. Some states change this.
- Weekends and holidays are not special under federal law. Premium pay for those days is a policy choice unless a state law or contract requires it.
- Unauthorized overtime still has to be paid. If you "suffer or permit" the work, it counts. You can discipline an employee for violating an overtime-approval policy, but you cannot refuse to pay for the hours.
- Comp time instead of overtime pay is generally not allowed for private-sector employers. Offering time off later in place of overtime pay is a frequent mistake.
Who is exempt?
Overtime applies to non-exempt employees. Paying someone a salary does not, by itself, make them exempt. For the common white-collar exemptions (executive, administrative and professional), an employee generally must:
- Be paid on a salary basis, a predetermined amount that is not reduced for variations in the quality or quantity of work
- Earn at least the federal salary threshold, which is $684 per week ($35,568 per year) under the 2019 rule that the Department of Labor reinstated after a court vacated its 2024 increase
- Perform duties that meet the specific test for the exemption
The duties test is where most misclassification happens. Job titles do not matter; actual duties do. An "office manager" who mainly does data entry and scheduling may not meet the administrative exemption, regardless of salary.
Several states set higher salary thresholds or different duties tests, including California, New York, Washington, Colorado and Alaska. If you have staff in those states, check the state HR law guides for the current numbers.
States with daily overtime
A handful of states require overtime based on hours worked in a day, not just in a week. These are the rules that most often catch multi-state employers off guard.
| State | Daily overtime rule (summary) |
|---|---|
| California | Time and a half after 8 hours in a workday and for the first 8 hours on the seventh consecutive day worked in a workweek; double time after 12 hours in a day and after 8 hours on the seventh consecutive day; plus weekly overtime after 40 hours |
| Alaska | Time and a half after 8 hours in a day or 40 in a week; does not apply to employers with fewer than four employees, and approved flexible work plans can change the daily trigger |
| Nevada | Time and a half after 8 hours in a 24-hour period for employees earning less than 1.5 times the state minimum wage, unless on an agreed four-day, 10-hour schedule; weekly overtime after 40 hours |
| Colorado | Time and a half after 12 hours in a workday or 12 consecutive hours, or 40 hours in a week, whichever results in more pay |
Other states have narrower rules, such as overtime for certain industries or for the seventh consecutive day of work. Always apply the rule that gives the employee the most pay when federal and state rules differ, and never pay overtime twice on the same hours.
Getting the regular rate right
Overtime is one and a half times the regular rate, which is not always the same as the hourly wage. The regular rate includes most compensation paid for work, divided by the hours worked in the week. It generally includes:
- Hourly wages and salary (for non-exempt salaried employees)
- Non-discretionary bonuses, such as production, attendance, safety or sign-on bonuses promised in advance
- Commissions
- Shift differentials and hazard pay
- On-call pay
It generally excludes:
- Truly discretionary bonuses, where both the decision to pay and the amount are at the employer's sole discretion and not promised in advance
- Gifts, such as a modest holiday bonus not tied to hours or productivity
- Pay for time not worked, like vacation, holiday or sick pay
- Reimbursement of business expenses
- Certain premium payments that already count as overtime premiums
Worked example
An employee earns $20 per hour, works 45 hours in a week, and earns a $90 weekly production bonus.
- Straight-time earnings: 45 x $20 = $900
- Add the bonus: $900 + $90 = $990
- Regular rate: $990 / 45 = $22.00 per hour
- Overtime premium owed: 5 hours x ($22.00 x 0.5) = $55
- Total pay: $990 + $55 = $1,045
If the employer had simply paid 5 hours at $30 (1.5 x $20) and added the bonus, the employee would have received $1,040, an underpayment of $5. Small per week, but multiplied across employees and years, it becomes a real liability. Bonuses paid quarterly or annually must be allocated back across the workweeks in which they were earned.
Hours worked: what counts
Overtime errors often come from undercounting hours. Generally, the following count as hours worked:
- Pre-shift and post-shift work, such as booting up systems or closing out registers
- Answering emails or messages after hours when the employer knows or should know
- Short rest breaks (typically 20 minutes or less)
- Required training and meetings
- Travel between job sites during the workday
Bona fide meal periods (typically 30 minutes or more, completely relieved of duty) generally do not count. Several states also have their own meal and rest break rules.
Overtime compliance checklist
- Define and document your fixed workweek
- Review every exempt role against current salary thresholds and duties tests, federal and state
- Identify employees in daily-overtime states and configure payroll accordingly
- Include non-discretionary bonuses, commissions and differentials in the regular rate
- Track all hours worked for non-exempt staff, including remote and after-hours work
- Adopt a written overtime approval policy, while paying for all hours worked
- Do not substitute comp time for overtime pay
- Keep time and pay records (the FLSA requires payroll records to be kept for at least three years)
- Audit payroll at least once a year
Why it matters
Under the FLSA, employees can generally recover unpaid overtime for two years, or three years for willful violations, plus an equal amount in liquidated damages and attorney's fees. Many state laws allow longer lookback periods or additional penalties. A small, systematic error can become a large claim, especially if it affects a group of employees.
Key takeaways
- Federal law requires time and a half after 40 hours in a fixed workweek, with no averaging across weeks.
- California, Alaska, Nevada and Colorado add daily overtime rules; always apply the more generous rule.
- Salary alone does not make someone exempt; both the salary and duties tests must be met.
- The regular rate includes non-discretionary bonuses and other pay, not just the hourly wage.
- Pay for all hours worked, even when overtime was not approved.
Unsure whether a role is exempt or how overtime works in your state? Ask the AskHrAI HR assistant or check your state's page in the HR law guides.
This article is general information, not legal advice. Employment laws change and vary by state and city — confirm details with your state labor department or an employment attorney.