Overtime
What is overtime pay and how is it calculated under the FLSA?
Overtime is the additional pay nonexempt employees earn for hours worked over 40 in a single workweek, at a rate of at least one-and-a-half times the regular rate of pay under the Fair Labor Standards Act. Some states have stricter rules, including daily overtime thresholds in California and a handful of other jurisdictions. The regular rate isn't just the base hourly wage; it includes most nondiscretionary bonuses and commissions, which trips up most calculation mistakes.
Overtime is the single most common wage-and-hour compliance failure cited by the Department of Labor, and it's rarely intentional. Most violations come from two patterns: treating the wrong employees as exempt, and calculating the regular rate as just the base hourly wage when bonuses and shift differentials should be included. Either mistake compounds fast. A payroll error of $40 per employee per week, across 50 employees, over two years, adds up to $208,000 before liquidated damages double it. Getting overtime right isn't complicated, but it requires discipline.
How to Calculate Overtime Under the FLSA
The federal rule is straightforward in form: any hours worked over 40 in a single workweek require payment at 1.5 times the regular rate. The regular rate is calculated by dividing total straight-time compensation for the workweek (including nondiscretionary bonuses, shift differentials, and most commissions) by total hours worked.
The distinction between exempt and nonexempt determines who's eligible in the first place. Exempt employees meet both a salary test and a duties test. As of the 2026 rule, the salary threshold sits at $58,656 annually for most white-collar exemptions, with higher thresholds for highly compensated employees.
State Overtime Rules That Go Further
California applies daily overtime at 1.5 times the regular rate for hours over 8 in a workday and 2 times the regular rate for hours over 12. Alaska, Nevada, and Colorado also apply daily overtime rules, though the thresholds differ. When federal and state rules conflict, the rule more favorable to the employee applies.
Does an Hourly Bonus Count in the Regular Rate?
Yes, unless the bonus is purely discretionary. Nondiscretionary bonuses (production bonuses, attendance bonuses, promised retention bonuses) must be included in the regular rate for overtime calculation. A discretionary bonus given at year-end with no prior commitment usually doesn't.
The 2026 Salary Threshold and What It Means
The 2026 FLSA salary threshold for exempt status sits at $58,656 per year, or $1,128 per week. Highly compensated employees face a $151,164 threshold. Employees below the threshold must be classified as nonexempt and paid overtime for hours over 40, regardless of their duties.
Audit your exempt roster against the current threshold annually. Any employee paid below the threshold who's been treated as exempt owes back overtime for the misclassification period. The DOL's overtime guidance is the authoritative source for current thresholds.
Running an Overtime Compliance Program That Holds Up
Three controls prevent most overtime violations. First, document regular rate components monthly, so any bonus or differential that should roll into overtime is automatically captured. Second, track hours for all nonexempt employees accurately, including remote work and off-hours communication. Third, audit exempt classifications annually against both the salary test and the duties test.
Work with payroll and HR together to review any employee whose job has changed in the last year. Duties drift matters because an employee whose responsibilities narrowed may no longer qualify for the exemption they were hired under. Review the DOL's field operations handbook when in doubt, because the agency's interpretation of close cases usually wins in enforcement.
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