The Fair Labor Standards Act (FLSA) sets federal rules for minimum wage, overtime and recordkeeping. The Department of Labor's Wage and Hour Division explains them on its overtime pay page. States may impose stricter rules, such as daily overtime, which apply in addition.
The basic rule
Covered, non-exempt employees must receive overtime pay for hours worked over 40 in a workweek at a rate of at least one and one-half times their regular rate of pay. A workweek is a fixed, recurring period of 168 hours, seven consecutive 24-hour periods, set by the employer. Hours cannot be averaged across two weeks.
The regular rate is not always the hourly rate
The regular rate includes most compensation for work, such as nondiscretionary bonuses, shift differentials and commissions. A production bonus or attendance bonus generally must be included, which raises the overtime rate for that week. Discretionary bonuses, certain gifts and some other payments are excluded. The Department of Labor's fact sheet on overtime explains the details.
Exempt or non-exempt
Some employees are exempt from overtime. The most common exemptions, for executive, administrative and professional employees, generally require:
- A salary paid on a salary basis, at or above the required minimum level
- Duties that meet the specific test for the exemption
Job titles do not decide exemption; duties do. Paying someone a salary does not, by itself, make them exempt.
Common mistakes
- Treating salaried employees as automatically exempt
- Paying "comp time" instead of overtime to private-sector employees
- Ignoring off-the-clock work, such as answering email before a shift
- Leaving bonuses out of the regular rate
- Averaging hours over a pay period that covers two workweeks
- Day rates or piece rates without overtime calculations
Hours worked
Hours worked include all time an employee is required or permitted to work. Travel between job sites during the day, short rest breaks and required training generally count. Bona fide meal periods when the employee is completely relieved from duty generally do not.
Records
Employers must keep records of hours worked each day and week, pay rates, total earnings and overtime for non-exempt employees. See our guide to how long to keep business records.
In payroll
We set up overtime and bonus pay items so the regular rate is calculated correctly, and track hours by workweek even when pay periods are semimonthly. See our payroll services and our industry pages, such as payroll for construction, for industry-specific patterns.
Recordkeeping for nonexempt employees
The Department of Labor requires employers to keep certain records for nonexempt workers, including hours worked each day and week, regular hourly rate, total straight-time and overtime earnings, deductions and pay dates. The DOL's recordkeeping fact sheet lists the items. Use a timekeeping system rather than handwritten estimates, and keep time records together with payroll registers.
Common overtime errors
- Averaging hours over two weeks instead of calculating each workweek separately
- Leaving bonuses out of the regular rate
- Not counting short breaks or work done off the clock
- Treating salaried employees as exempt without checking the duties tests
Key terms
Definitions for terms used in this guide, from our small business glossary:
- Exempt and Non-Exempt Employees: Non-exempt employees must receive overtime under federal law; exempt employees meet specific tests that remove that requirement.
