Overtime Pay Rules: Federal and State Law, How to Calculate

Working more than 40 hours a week? Federal law entitles most workers to time-and-a-half, 1.5 times their regular rate, for every overtime hour. But the rules are more nuanced than the simple “over 40” rule suggests. Here’s what you need to know about overtime eligibility, calculation, state variations, and how overtime affects your taxes.

Federal Overtime Law: The FLSA Basics

The Fair Labor Standards Act (FLSA) establishes the federal baseline:

• Rate: 1.5× the regular rate of pay for all hours over 40 in a workweek
• Workweek: A fixed, recurring 7-day period (set by the employer)
• Coverage: Most private-sector employees, plus federal, state, and local government workers

Overtime is calculated on a workweek basis, not a pay period basis. A biweekly paycheck might cover 80 hours total, but if the first week had 38 hours and the second had 42, you’re owed 2 hours of overtime, even though the average is 40.

Who Is Exempt from Overtime?

The FLSA exempts workers classified as exempt from overtime requirements. Key exemptions:

White-Collar Exemptions

To qualify for these exemptions, an employee must:

1. Be paid on a salary basis (not hourly)
2. Earn at least $684/week ($35,568/year) as of 2026
3. Primarily perform exempt job duties

The three main categories:

• Executive: Primary duty is managing the enterprise or a department, directing 2+ employees
• Administrative: Primary duty is office/non-manual work directly related to management; exercises discretion and independent judgment
• Professional: Requires advanced knowledge in a field of science or learning, typically acquired through degree-level education (teachers, lawyers, doctors, CPAs, engineers)

Other Common Exemptions

• Highly compensated employees (HCE): Earn at least $107,432/year and perform at least one exempt duty
• Outside sales: Primary duty is making sales away from the employer’s place of business
• Computer professionals: Certain IT workers paid at least $684/week or $27.63/hour
• Farm workers: Agricultural employees follow different rules
• Live-in domestic workers: Subject to special rules

Important: Job title doesn’t determine exemption status. The IRS and Department of Labor look at actual job duties and pay structure. Being called a “manager” doesn’t automatically make you exempt.

How to Calculate Overtime Pay

Hourly Employees

For hourly workers, overtime is straightforward:

Overtime rate = Hourly rate × 1.5

Example: You earn $20/hour and work 45 hours in a week:

• Regular pay: 40 hours × $20 = $800
• Overtime pay: 5 hours × $30 = $150
• Total: $950

Use our hourly to salary calculator to see what overtime does to your annualized earnings.

The “Regular Rate” When You Have Multiple Pay Components

The overtime rate is based on the regular rate of pay, not just the base hourly rate. The regular rate includes:

• Base hourly pay
• Shift differentials
• Non-discretionary bonuses (production bonuses, attendance bonuses, etc.)
• Commissions

Excluded from the regular rate:

• Gifts and discretionary bonuses
• Vacation/sick pay
• Overtime pay itself

Example: You earn $18/hour base plus a $100 non-discretionary bonus in a 45-hour workweek:

1. Total compensation: (45 × $18) + $100 = $910
2. Regular rate: $910 ÷ 45 hours = $20.22/hour
3. Overtime premium: $20.22 × 0.5 × 5 hours = $50.56
4. Total pay: $910 + $50.56 = $960.56

(You’ve already been paid the straight time for all 45 hours in step 1, the overtime premium is just the extra half.)

Salaried Non-Exempt Employees

Some salaried employees are not exempt from overtime (for example, a salaried worker earning below $684/week). For these workers:

Regular rate = Weekly salary ÷ hours worked

Example: Salary of $600/week, worked 50 hours:

• Regular rate: $600 ÷ 50 = $12/hour
• Overtime premium: $12 × 0.5 × 10 hours = $60
• Total: $660

State Overtime Laws: Going Beyond Federal

Several states have stronger overtime protections than federal law:

California (the strictest in the US)

California has both daily and weekly overtime:

• Hours over 8/day: 1.5× rate
• Hours 1–8 on the 7th consecutive workday: 1.5×
• Hours over 12/day: 2× rate (double time)
• Hours over 8 on the 7th consecutive workday: 2×
• Hours over 40/week: 1.5×

California also restricts “alternative workweek schedules” and has stricter exemption thresholds.

Alaska

Overtime required for hours over 8/day or 40/week (whichever comes first).

Nevada

Overtime for hours over 8/day or 40/week if the employee earns less than 1.5× the minimum wage.

Other states

Most states (Texas, Florida, New York, etc.) follow the federal 40-hour weekly standard with no additional daily overtime rules. Check your state’s Department of Labor for current rules.

How Overtime Affects Taxes

Overtime pay is ordinary income, taxed at your marginal federal rate. What changed is the “no tax on overtime” deduction: for tax years 2025 through 2028, an employee covered by the FLSA can deduct up to $12,500 a year ($25,000 on a joint return) of qualified overtime compensation, whether or not they itemize. Only the premium the FLSA requires counts, such as the half in time-and-a-half; overtime owed only under state law (California daily overtime) or a union contract does not. The cap shrinks by $100 for each $1,000 of modified AGI above $150,000 (IRS FS-2026-13, 26 U.S.C. § 225).

Withholding does not drop on its own: overtime stays subject to federal income tax withholding unless you give your employer a new 2026 Form W-4 that accounts for the deduction. Our overtime tax guide works through a full example.

FICA taxes (Social Security at 6.2%, Medicare at 1.45%) apply to all overtime income, deduction or not. If your total earnings haven’t yet reached the Social Security wage base ($184,500 in 2026), overtime income is fully subject to the 6.2%.

To see exactly how overtime affects your take-home pay after all taxes, use the paycheck calculator with your state.

Common Overtime Violations to Know

The Department of Labor’s Wage and Hour Division investigates thousands of FLSA complaints annually. Common violations:

• Misclassification: Calling a worker “exempt” when they don’t meet the salary or duties test
• Off-the-clock work: Requiring employees to work before clocking in, during lunch, or after clocking out
• Averaging hours across weeks: Paying 80 hours per two-week pay period but ignoring a 45-hour week within that period
• Comp time in lieu of overtime: Private employers cannot offer compensatory time off instead of overtime pay (only public employers can, under strict rules)
• Misclassifying as independent contractors: True employees must receive overtime regardless of how they’re labeled

If you believe you’re owed unpaid overtime, you can file a complaint with the DOL Wage and Hour Division or consult an employment attorney. The statute of limitations is typically 2 years (3 years for willful violations).

Key Takeaways

• Federal law: 1.5× for hours over 40/week for non-exempt employees
• Exemption requires: salary basis + $684+/week + specific job duties
• California: daily overtime kicks in over 8 hours/day, significantly more protective
• The regular rate includes non-discretionary bonuses, not just base hourly pay
• Overtime is taxed at the same rates as regular wages, but from 2025 to 2028 up to $12,500 of the FLSA premium is deductible from federal taxable income
• Private employers cannot substitute comp time for overtime pay
• Use the hourly to salary calculator to model what consistent overtime does to your annual earnings