How to calculate overtime pay

Stay compliant with the overtime laws in the US. Learn the overtime rules, how to calculate overtime pay accurately, and tips for getting calculations right to avoid costly mistakes.

Published Thursday April 10th 2025

Table of contents

• What is overtime pay?
• Overtime laws in the US
• How to calculate overtime pay
• Tips for calculating overtime pay
• FAQs on overtime pay
• Get overtime sorted with payroll software

Key takeaways

• Employers must pay overtime when non-exempt employees work more than 40 hours a week.
• Employers can define any 7-day period as a work week, but they must be consistent.
• By law, the overtime rate is 1.5 times the employee's regular hourly rate.
• Calculate your salaried employees' hourly overtime rate by dividing their annual salary by 52 weeks, and then by 40 hours.
• You must include non-discretionary bonuses when calculating overtime.
• Make sure you classify your employees correctly and apply the correct overtime formula to your calculations.

What is overtime pay?

Overtime pay is extra compensation for employees who work more than 40 hours a week. Under the Fair Labor Standards Act (FLSA), you must pay your employees 1.5 times their usual hourly wage for overtime hours, but there are a few exceptions.

Who qualifies for overtime pay?

Almost all employees paid hourly are entitled to overtime pay. Overtime pay for salaried employees is only required if the employees are non-exempt – salaried blue-collar workers are usually entitled to overtime pay, while most salaried white-collar workers are exempt.

Overtime laws in the US

The FLSA says that employers must pay non-exempt employees 1.5 times their standard rate if they work more than 40 hours a week.

Employers get to define their work weeks. The work week can start on any day or time, but it must be consistent from week to week. For instance, you could use a work week that runs from Sunday at midnight to Saturday at midnight, or you could use a week that runs from 8 am Monday to 7:59 am the following Monday.

Exemptions from overtime pay

The FLSA says that salaried employees are exempt from the overtime rules if they earn at least $684 per week and work in an executive, administrative, professional, or creative role. As of 2025, there are overtime exemptions for outside sales employees and skilled computer employees who are paid at least $27.63 an hour or $684 a week.

Check out the U.S.Department of Labor's fact sheet on exempt employees.

Some states have stricter overtime rules. For example, in California you must pay overtime to non-exempt employees if they work more than 8 hours a day, and beyond 12 hours of overtime they're entitled to double their hourly rate. In addition, if an employee works 6 days in a row, they're entitled to double pay for any more than 8 hours on the seventh day.

For your state’s overtime rules, check with your state's Department of Labor and Employment. Here’s info from Bloomberg Law on overtime rules by state.

How to calculate overtime pay

Here's the time and a half calculation for overtime pay:

Hourly rate x 1.5 x overtime hours worked = overtime pay

Here’s how to apply this formula to hourly employees, non-exempt salaried employees, and employees who’ve received a bonus or work on commission.

How to Calculate overtime pay for hourly-rate employees

To calculate overtime pay for your hourly employees, first work out how many hours they've worked over 40. Then, multiply that number by 1.5 times their regular hourly rate.

For instance, if someone earns $20 an hour and works 45 hours a week, calculate the overtime as:

5 x 1.5 x $20 = $150

How to Calculate overtime pay for salaried employees

Unless you salaried employees are exempt from overtime (in which case you just pay them their weekly rate, regardless of the hours they’ve worked) calculate their hourly rate and then apply the time-and-a-half calculation.

To find their hourly rate, divide their annual salary by 52 weeks and then by 40 hours:

Annual salary ÷ 52 weeks ÷ 40 Hours = hourly rate

For instance, if their salary is $52,000, their weekly rate is $1000 and their hourly rate is $25.

So if this employee works 50 hours a week, calculate overtime pay as:

10 (no. of hours over 40) x 1.5 x $25 (hourly rate) = $375

Overtime pay for bonus and commission-based employees

When calculating overtime pay, include commissions and non-discretionary bonuses in the employee's standard hourly rate. You don't have to include discretionary bonuses, however.

• A discretionary bonus is what you’d award an employee for something unusual – such as a holiday bonus or an award to the employee of the month.
• Non-discretionary bonuses are generally based on an agreed formula (perhaps within employee contracts) for quality, accuracy, or efficiency of work.

Here's how you calculate overtime for employees who receive non-discretionary bonuses or commissions:

(Total weekly earnings + bonus) ÷ total hours worked = adjusted hourly rate

Say an employee earns $20 per hour, works 50 hours during the week, and receives a $100 bonus for meeting a certain goal. Here's their adjusted hourly rate:

($20 x 50 hours + $100) ÷ 50 hours = $22.

The employee gets time-and-a-half for their overtime hours, but this time, don’t use the time-and-a-half calculation. Why? Because you’ve already accounted for the base wage when you multiplied 50 hours by their hourly rate.

So now, you just need to calculate the extra they get on top. To do that, take the overtime hours and multiply them by the adjusted hourly rate, then multiply the result by .5:

(10 hours x $22) x 0.5 = $110

Now add this overtime pay to the rest of their pay:

$110 + ($20 x 50 hours) + $100 = $1210

Check out the U.S. Department of Labor's fact sheet about overtime pay formulas for bonuses and commissions

Tips for calculating overtime pay

To comply with overtime laws in the US, follow these tips:

• Classify your employees correctly. Make sure your salaried employees are either exempt under FLSA exemptions regulations or pay them overtime if they're not exempt.
• Track all hours worked – use time-tracking systems like Xero so you always know when employees go over 40 hours.
• Use a consistent work week – you can decide when your work week starts and ends, but it must be consistent.
• Use the right overtime pay formula – the formula varies for hourly pay, salary, and bonuses.
• Check state-specific overtime laws – your state’s rules may be more strict than federal requirements.

FAQs about overtime pay

Can an employer refuse to pay overtime if it wasn’t pre-approved?

No. Under the FLSA, you must pay non-exempt employees overtime for all overtime hours they’ve worked, even if you didn’t approve the overtime in advance.

While employers can require employees to get their approval for overtime, that just means employees must down tools when they hit 40 hours. It doesn't mean employers can avoid paying overtime rates if their staff work extra hours.

Do part-time employees qualify for overtime pay?

Yes. Part-time employees qualify for overtime if they work more than 40 hours in a week, regardless of whether they’re normally part time or full time.

Can employees waive their right to overtime pay?

No –overtime is federal law. Even if an employee agrees to work overtime for their regular rate, their employer is still legally obligated to pay their overtime.

Is overtime pay different for night shifts or weekends?

No. Federal law does not have different overtime rates for night shifts or weekends, although employers can offer higher rates for these hours if they choose to.

Do independent contractors receive overtime pay?

No – independent contractors are not covered by the FLSA as they’re not classed as employees. But if you mis-classify employees as contractors you can be penalized and face extra taxes.

Read the IRS's worker classification 101 to check you're classifying workers correctly.

How does overtime work for remote employees?

The same rules apply to remote employees as for employees who work on site. All non-exempt employees must be paid time-and-a-half for all time worked over 40 hours in a week.

What happens if an employer fails to pay overtime?

Employers may face penalties or legal action for not paying overtime correctly. Employees can file complaints with the U.S. Department of Labor.

Can an employer give extra time off instead of paying overtime?

No – employers cannot replace overtime pay with extra time off or other incentives. They must follow the FLSA's overtime rules.

Does overtime apply to employees with irregular work schedules?

Yes. Eligibility for overtime is based on total hours worked in a fixed 7-day work week, regardless of whether an employee’s schedule varies from week to week. But there are exceptions for some industries.

Are there special overtime rules for healthcare, law enforcement, and emergency workers?

Yes – the FLSA has specific overtime rules for these workers. For instance, the 8/80 rule for nursing home and hospital employees requires you to pay overtime when an employee works over 8 hours in a day and 80 hours in a two-week period, but only if you have an agreement with the employee - otherwise, you must pay overtime based on the standard OT rules.

Here are the FLSA rules for law enforcement and firefighters and the rules for healthcare employees.

Get overtime sorted with payroll software

An efficient payroll accounting system can calculate your overtime automatically and automate many of your payroll tasks. That’s got to be good for your employees, your business, and your stress levels.

Here’s how Xero payroll software can work for your business