How to Calculate Overtime Pay [Employer Guide]

The Importance of Accurate Overtime Calculations

The Department of Labor closely watches how employers calculate overtime pay under the Fair Labor Standards Act (FLSA). The FLSA is a federal law that requires that employers pay workers 1.5x the regular rate of pay for hours worked beyond 40 in a workweek. The regular rate includes nondiscretionary bonuses, commissions, and shift differentials in addition to hourly wages or salary.

When employers miscalculate overtime pay, the DOL can order repayment of back wages and may impose civil penalties for repeated or willful violations. Employers also run the risk of disgruntled employees filing lawsuits or class actions, which can require them to pay back wages, liquidated damages that double the amount owed, and the employee’s attorney’s fees.

Overtime Requirements Under the FLSA

The Fair Labor Standards Act (FLSA) sets the federal standard for overtime pay.

Covered Employers

The Fair Labor Standards Act (FLSA) applies to companies with at least $500,000 in annual sales, and companies that regularly handle interstate activities including processing credit card payments, making out-of-state phone calls, or shipping goods across state lines. Because almost all companies engage in some type of interstate commerce, the FLSA applies to the overwhelming majority of employers.

Exempt vs. Nonexempt Employees

The FLSA divides employees into two main categories for overtime purposes: nonexempt employees and exempt employees.

Nonexempt employees are entitled to overtime pay at 1.5x their regular rate of pay for all hours worked over 40 in a workweek. Most hourly employees are nonexempt, along with some salaried employees who do not meet exemption requirements.
Exempt employees are not entitled to overtime pay. Generally speaking, exempt employees (1) are paid a salary, (2) earn more than $684 per week (as of Sept 2025), and (3) perform job duties that fall into specific exempt categories, like executive, administrative, or professional roles.

Employers sometimes misclassify employees as exempt in an attempt to save time and money, and to generally simplify payroll procedures. However, when employees discover an employer misclassified them as exempt and failed to pay them overtime wages that they were entitled to, they typically respond by filing lawsuits.

Calculating an Employee’s Regular Rate

Overtime pay under the FLSA kicks in once a nonexempt employee works more than 40 hours in a week, and those extra hours have to be paid at one and a half times the regular rate.

An employee’s regular rate is more than just their hourly wage or weekly salary. Rather, it reflects all compensation the employee earns in a workweek, unless the law specifically excludes it. Some types of compensation that count towards an employee’s regular rate of pay include nondiscretionary bonuses, commissions, and shift differentials. With that being said, certain types of payments do not count toward an employee’s regular rate. Discretionary bonuses, gifts, expense reimbursements, and payments for vacation, holidays, or sick leave are excluded because they are not tied to hours worked or productivity.

One of the most common errors employers make when calculating overtime is miscalculating an employee's regular rate of pay. Employers who only consider an employee's base wage or base salary expose themselves to lawsuits, back-pay orders, employee attorney’s fees, and liquidated damages that double the amount of pay actually owed.

Overtime Calculations by Employee Classification

Hourly Employees

Employers calculate overtime for hourly employees by multiplying the employee’s hourly wage by 1.5 for every hour worked over 40 in a single workweek. The calculation has to include all hours worked, including time spent on required pre- or post-shift duties, as well as short breaks under 20 minutes

Example: An employee earns $20 per hour and works 45 hours in one workweek. The first 40 hours are paid at the employee’s regular rate of $20 ($800). The 5 overtime hours are paid at 1.5 times the regular rate, which is $30 ($150). The employee’s total pay for the week is $950.

Salaried Nonexempt Employees

Salaried employees who do not meet the FLSA’s exemption tests are still entitled to overtime pay. To calculate overtime, employers divide the weekly salary by the number of hours the salary is intended to cover, then pay 1.5 times that rate for all hours worked over 40 in the workweek. In most cases, unless the employer and employee have a clear agreement otherwise, the salary is assumed to cover 40 hours per week.

Example: An employee earns a weekly salary of $800. Because the employer and employee did not agree on any set number of expected hours, the salary covers 40 hours. The employee’s regular rate is $20 per hour ($800 ÷ 40). If the employee works 45 hours, the 5 overtime hours are paid at $30 each ($150). The employee’s total pay for the week is $950.

Employees With Multiple Pay Rates

When an employee works at two (or more) different hourly rates in the same workweek, employers determine the regular rate by calculating the weighted average. They then use that weighted average to calculate the overtime premium in the same way they would for a regular hourly employee.

Employers of employees with multiple pay rates:

Add up all straight-time earnings (hours × rate for each job).
Divide by total hours worked in the week.
Pay an additional 0.5 × the regular rate for every hour worked over 40, since the straight-time portion is already included in the weekly earnings.

Example: An employee works 20 hours as a warehouse clerk at $15 per hour ($300) and 25 hours as a forklift operator at $20 per hour ($500), for total earnings of $800. The employee worked 45 hours, so the regular rate is $17.78 ($800 ÷ 45). The overtime premium is $8.89 (0.5 × $17.78). Five overtime hours add $44.45, bringing the employee’s total pay for the week to $844.45.

Piece-Rate and Commission Employees

Employers sometimes pay workers based on their output or the number of sales they make, instead of an hourly wage or salary. A piece-rate worker earns pay for each unit they produce or task they complete. A commission worker earns pay based on the number of sales they make or how much revenue they generate. Piece-rate and commission employees are still entitled to overtime pay if they work more than 40 hours in a week.

Employers with piece-rate and commission employees:

Add up all earnings for the week from piece-rate work or commissions.
Divide that total by the total number of hours worked to find the regular rate.
Pay an additional 0.5 × the regular rate for every hour worked over 40, since the straight-time pay for those hours is already included in the weekly earnings.

Example: A commission employee earns $900 in one week and works 45 hours. The regular rate is $20 ($900 ÷ 45). The overtime premium is $10 (0.5 × $20). Five overtime hours add $50, bringing the employee’s total pay for the week to $950.

Fluctuating Workweek Employees

Some nonexempt employees are paid a fixed salary even though their hours change from week to week. Unlike exempt salaried employees, fluctuating workweek employees are still eligible for overtime pay because their job duties are routine rather than executive, administrative, or professional. One example of a worker who might be paid under the fluctuating workweek method is a field service of maintenance technician whose hours change depending on how many service calls or projects come in each week. One week they might be scheduled for 32 hours, the next week for 46, and the following week for 38.

Because the fixed salary covers all straight-time hours, the employer only adds the “half-time” premium for each hour over 40.

Employers calculate overtime for fluctuating workweek employees in two steps:

Divide the weekly salary by the total hours worked to find the regular hourly rate.
Pay an additional 0.5 × the regular rate for every hour worked over 40.

Example: An employee earns a fixed weekly salary of $600 and works 50 hours. The regular rate is $12 ($600 ÷ 50). Overtime is paid at $6 per hour (0.5 × $12). Ten overtime hours add $60 and bring the total pay for the week to $660.

State and Local Nuances Worth Noting

TheFLSA sets the federal baseline for overtime. However, some states and cities impose stricter rules or different requirements, and employers are always bound by the standard that provides greater protection to employees.

Daily Overtime Requirements

Most states follow the federal rule of calculating overtime only after 40 hours in a week. However, a few states go further by requiring overtime for the extra hours worked in a single workday once employees pass certain thresholds.

Alaska requires employers to pay overtime for every hour worked beyond 8 in a single workday or beyond 40 in a workweek, whichever comes first.

Nevada requires employers to pay daily overtime for employees earning less than 1.5 times the state minimum wage. Those employees are entitled to overtime for every hour worked beyond 8 in a single workday or beyond 40 in a workweek. Employees paid above that threshold qualify only for weekly overtime.

California requires employers to pay overtime for every hour worked beyond 8 in a single workday. Employers also have to pay double-time for every hour worked beyond 12 in a workday, and for every hour beyond 8 on the seventh consecutive workday in a week.

Higher Salary Thresholds for Exemption

The salary threshold is the minimum amount of pay a salaried employee has to earn before they are exempt from overtime. If the employee’s salary is below that line, they are automatically nonexempt and eligible for overtime, regardless of their job duties.

At the federal level, the salary threshold is $684 per week. Some states raise the bar higher.

California ties the threshold to the state minimum wage. For full-time employees, the salary has to equal at least twice the minimum wage. Because California raises its minimum wage each year, the exemption threshold increases annually.
New York sets different thresholds depending on location. New York City has the highest figure, while Long Island, Westchester, and the rest of the state use lower but steadily rising levels.
Washington links the threshold to the state minimum wage and the size of the employer. The level increases each year until it reaches 2.5 times the minimum wage in 2028.
The District of Columbia sets the threshold at three times the minimum wage for a 40-hour week. Whenever the local minimum wage rises, the threshold rises as well.

Penalties

Federal Penalties

When employers miscalculate overtime payments or fail to pay overtime altogether, the U.S. Department of Labor doesn’t just order them to pay the unpaid wages. In most cases, employers also owe liquidated damages in the same amount, which doubles liability. For example, if an employer owes $5,000 in unpaid overtime, courts will generally order them to pay the employee $10,000. Federal courts can also order employers to pay the employee’s attorney’s fees and litigation costs.

The Department of Labor can also impose civil money penalties when it finds that an employer has repeated or willful overtime violations. For example, if the agency investigates and discovers that the same employer has ignored overtime rules across multiple inspections or over several years, it can assess civil penalties in addition to ordering repayment of wages and damages.

State-Level Penalties

Several states layer additional penalties on top of federal liability, and the costs can grow quickly across multiple employees and pay periods.

In California, employers face “waiting time” penalties when final wages, including overtime, are not paid on time. The penalty equals one day of wages for each day the payment is late, up to 30 days, per employee. California also fines employers for inaccurate wage statements, with penalties applied separately to each employee, each pay period.

In New York, employees can recover liquidated damages equal to the unpaid wages, which doubles the total owed. On top of that, New York imposes fines for missing or inaccurate wage notices, which can run into hundreds of dollars per employee.

In Washington, the Department of Labor & Industries can investigate overtime complaints and impose civil penalties for violations. Penalties are assessed on a per-employee basis, so when dozens or hundreds of employees are involved, the fines can multiply well beyond the underlying back wages and damages. For a broader overview of wage-and-hour compliance obligations, see our article on Wage & Hour Law Compliance for Employers.

How Employers Can Limit Liability

Keep Detailed Time and Pay Records

Employers can prevent overtime disputes by keeping exact records of start times, end times, breaks, daily hour totals, and weekly hour totals. Pay records should also show how the employer calculated overtime. When employers keep detailed time and pay records, employers are better able to prove they were compliant with overtime laws. When records are missing or incomplete, courts and agencies generally accept the employee’s account of what hours they worked and what pay they received.

Conduct Payroll Audits

Employers who conduct internal payroll audits are able to check employee schedules and pay records to make sure overtime is being calculated correctly. Employers conducting payroll audits should:

Review timesheets and payroll records to confirm all hours worked are recorded and paid.
Check that nonexempt employees receive overtime pay for every hour beyond 40 in a week (or daily limits in states like California).
Verify that overtime pay includes nondiscretionary bonuses, commissions, and shift differentials in the regular rate.
Reevaluate salaried positions to confirm employees classified as exempt meet both the salary threshold and duty tests.

An audit catches errors before they turn into lawsuits or agency investigations. Correcting problems during an internal review shows good faith and reduces liability compared to having the Department of Labor or a state agency uncover the same issues.

Correct Mistakes Quickly

When an employee reports a pay error, employers can avoid escalation by correcting it on the next paycheck. Paying the shortfall right away shows that the employer is acting in good faith and cuts off additional penalties. Ignoring complaints or delaying corrections creates evidence of willful conduct, which can increase liability in investigations and lawsuits.

If you have questions about how federal or state overtime rules apply to your workforce, or if you want to audit your current practices to reduce risk, reach out to Conn Maciel Carey LLP’s national labor and employment group. Our attorneys advise employers on compliance strategies, defend against wage-and-hour claims, and represent companies during Department of Labor and state agency investigations. Contact us today at (202) 715-6244 to discuss how we can help protect your business from costly overtime liability.

This article is for informational purposes only and does not constitute legal advice. While we strive to ensure accuracy, laws and regulations may change, and unintended errors may occur. This content may not address every aspect of the relevant legal requirements. For guidance on your specific situation, consult your attorney.