Overtime pay is one of the strongest protections in U.S. labor law, yet many workers misunderstand who qualifies and how the rate is calculated. The Fair Labor Standards Act sets a federal floor, and some states add stronger rules on top. Knowing the mechanics helps you verify your paycheck and recognize when you are owed more.
The federal 40-hour rule
Under the FLSA, non-exempt employees must be paid at least 1.5 times their regular rate for every hour worked beyond 40 in a single workweek. A workweek is a fixed, recurring period of 168 hours that your employer defines, and it does not have to match the calendar week. Overtime is calculated per workweek, so hours cannot be averaged across two weeks to avoid it. There is no federal requirement for extra pay simply for working nights, weekends, or holidays unless those hours push you past 40.
What the regular rate includes
The regular rate is not always just your base hourly wage; it must include most forms of compensation. Nondiscretionary bonuses, shift differentials, and commissions earned that week are folded in, which can raise the rate used to compute overtime. For example, a production bonus tied to output must be spread across the hours worked, nudging the overtime rate higher. Employers who calculate overtime on base wage alone while paying such bonuses may be underpaying.
Who is exempt
Exempt employees are not entitled to overtime, and exemption requires meeting both a salary test and a duties test. As a general rule, an exempt executive, administrative, or professional employee must be paid a salary of at least $684 per week and perform qualifying job duties. Job titles alone do not determine exemption; the actual responsibilities matter. Misclassifying a non-exempt worker as exempt is a common and costly employer error.
State rules and recent tax changes
States can be more generous than federal law, and several are. California, for instance, requires daily overtime after 8 hours and double time after 12 hours in a day, regardless of the weekly total. Separately, a temporary federal deduction for tax years 2025 through 2028 lets many workers deduct part of their overtime premium, up to $12,500 for single filers and $25,000 for joint filers, subject to income phaseouts. That deduction reduces income tax at filing, but overtime pay is still subject to Social Security and Medicare taxes.
Sofia earns $20 per hour and works 46 hours in a week. Her first 40 hours pay $800, and her 6 overtime hours pay $30 each for $180, making her gross pay $980. If she also earned a $50 nondiscretionary attendance bonus that week, her regular rate rises slightly and her overtime is recalculated on the higher base.
Key takeaways
- Non-exempt workers earn at least 1.5x their regular rate beyond 40 hours in a workweek.
- The regular rate must include nondiscretionary bonuses and commissions, not just base wage.
- Exemption requires both a salary above $684 per week and qualifying duties.
- Some states like California mandate daily overtime, and a temporary federal deduction may cut tax on overtime through 2028.
Common mistakes
- Assuming weekend or holiday work automatically earns overtime when only hours past 40 trigger it federally.
- Letting an employer calculate overtime on base wage while excluding a production or attendance bonus.
- Believing a salary or a manager title alone makes you exempt from overtime.
FAQ
Can my employer average my hours over two weeks?
No. Overtime is calculated separately for each workweek, so 30 hours one week and 50 the next still owes overtime on the 10 hours over 40 in the second week.
Is overtime taxed at a higher rate?
Not by a special rate; it is taxed as ordinary wages, though the larger paycheck can push more into a higher withholding tier, which evens out when you file.