Overtime
Also called OT, overtime pay, time and a half, FLSA overtime, overtime premium, regular rate of pay
Updated August 2, 2026
Overtime is the additional pay a non-exempt employee earns for hours worked beyond a legal threshold. Under the Fair Labor Standards Act the federal threshold is 40 hours in a workweek, and the required rate is one and one half times the employee regular rate of pay.
The regular rate is not the same thing as the hourly wage on the offer letter. It is a computed figure: total straight-time compensation for the workweek divided by total hours worked in that workweek. Anything the employer pays for work performed generally has to be folded in before that division happens.
The workweek is the unit of measurement
Overtime is measured over a fixed and regularly recurring period of 168 consecutive hours: seven consecutive 24 hour days. The employer chooses when that week starts, it can differ by department or location, and once set it should not be changed to dodge a premium.
Two consequences follow, and both trip teams up. First, the workweek does not have to line up with the pay period. A biweekly pay period contains two separate workweeks and each one is evaluated on its own. Second, hours cannot be averaged across workweeks. An employee who works 50 hours one week and 30 the next has 10 overtime hours, not zero, even though the two-week total is 80.
Only hours actually worked count toward the 40. Paid time off, holiday pay, and sick pay are not hours worked, so a week with 32 worked hours and 8 hours of holiday pay produces no overtime under federal rules.
What belongs in the regular rate
The FLSA starts from the position that all remuneration for employment is included, then carves out a short list of exclusions. When in doubt, the payment is in.
| Payment | In the regular rate | Why |
|---|---|---|
| Hourly wages and salary for the workweek | Yes | Base compensation for hours worked. |
| Shift differentials and hazard premiums | Yes | Extra pay tied to the conditions of the work performed. |
| Nondiscretionary bonuses such as production, attendance, or safety awards | Yes | Promised in advance, so the employee works with the bonus in view. |
| Commissions, whether paid weekly or later | Yes | Earnings for work performed, allocated back to the weeks that produced them. |
| Piece rate and per-job earnings | Yes | Straight-time compensation for output. |
| On-call pay for restricted time | Yes | Compensation for time the employee is not free to use for personal purposes. |
| Truly discretionary bonuses and gifts | No | Amount and timing stay at the sole discretion of the employer and are not promised. |
| Paid time off, holiday, and sick pay | No | Payment for time not worked. |
| Expense reimbursements and per diems at reasonable amounts | No | Reimbursement of a cost, not compensation. |
| Employer contributions to bona fide benefit plans | No | Contributions to a qualifying plan rather than wages. |
A worked calculation
A warehouse associate earns 20.00 an hour and works 45 hours in one workweek. Twenty of those hours are on the night shift, which carries a 2.00 per hour differential. The employee also earns a 100.00 production bonus that was promised in advance for hitting a pick rate.
Step one, total the straight-time earnings: 45 hours times 20.00 is 900.00, plus 20 hours times 2.00 in differential is 40.00, plus the 100.00 nondiscretionary bonus. Straight-time total is 1,040.00.
Step two, derive the regular rate: 1,040.00 divided by 45 hours worked is 23.11 per hour.
Step three, add the overtime premium. The straight-time total already paid for all 45 hours, so what remains owed is the half-time premium on the 5 overtime hours: 23.11 times 0.5 times 5 is 57.78.
Total owed for the week is 1,097.78. Paying the same employee 5 hours at 30.00, one and one half times the base wage alone, would have produced 1,090.00 and left the differential and the bonus out of the premium entirely.
Where overtime goes wrong in practice
- Computing the premium off the base hourly wage while shift differentials, commissions, and nondiscretionary bonuses sit in separate earning codes that the payroll system never folds into the rate.
- Paying a quarterly or annual nondiscretionary bonus without going back to recalculate the regular rate for each workweek in the bonus period.
- Averaging hours across a two-week pay period instead of testing each workweek separately.
- Offering compensatory time off to private-sector non-exempt employees, which is generally not permitted in place of cash overtime.
- Assuming a salary makes an employee exempt. Salary is one part of the test, not the whole test, and a salaried non-exempt employee still earns overtime.
- Enforcing a no-unauthorized-overtime rule by refusing to pay for hours that were in fact worked. The hours are payable, and the conduct is a discipline question.
Worth knowing
Several states go beyond the federal weekly rule. Daily overtime after eight hours, double time thresholds, seventh consecutive day premiums, and industry-specific wage orders all exist at the state level. Where federal and state rules differ, the one more favorable to the employee applies, so multi-state employers have to evaluate both.
Why it matters operationally
Overtime errors compound quietly. A rate that is wrong by fifty cents is wrong for every overtime hour, for every employee on that pay code, for as long as the configuration stands, and back pay claims reach back years.
The operational fix is structural rather than vigilant. Map every earning code to an include or exclude decision for the regular rate, review that mapping whenever a new bonus or premium is introduced, and reconcile a sample of overtime paychecks by hand after any payroll configuration change.
Who this applies to
Applies to non-exempt employees covered by the FLSA. Several states add daily overtime, seventh-day rules, or a higher premium, and the more generous rule governs.
Common questions
Is the regular rate just the hourly wage?
Only when the hourly wage is the sole payment for the week. As soon as an employee also receives a shift differential, a nondiscretionary bonus, a commission, or piece-rate earnings, the regular rate is higher than the base wage and has to be recomputed for that workweek.
Can an employer average hours across a two-week pay period?
No. Each workweek stands alone under the FLSA. Fifty hours in week one and thirty in week two produces ten overtime hours even though the pay period total is eighty.
Does paid time off count toward the 40 hour threshold?
Not under federal rules, because overtime is based on hours actually worked. An employer may choose to count paid leave toward the threshold as a matter of policy, and some collective bargaining agreements require it, but the FLSA does not.
What happens when a quarterly bonus is paid after the fact?
A nondiscretionary bonus is allocated back over the workweeks it was earned in, and the overtime premium for each of those weeks is recalculated on the higher regular rate. The difference is paid as a retroactive overtime adjustment.
Can a private employer give comp time instead of overtime pay?
Generally no. Compensatory time off in place of cash overtime is available to public agency employers under specific conditions. Private-sector employers owe the cash premium in the pay period the overtime hours were worked.
Sources
- Fair Labor Standards Act of 1938 — U.S. Congress (29 U.S.C. § 201 et seq.)
- Maximum Hours and Overtime Compensation — U.S. Congress (29 U.S.C. § 207)
- Overtime Compensation, Computation of the Regular Rate — U.S. Department of Labor, Wage and Hour Division (29 C.F.R. Part 778)
Related
Related terms: fluctuating workweek, compensatory time, nondiscretionary bonus, hours worked