Overtime is where small businesses get burned. Not because owners are trying to cheat anyone — usually it’s a misclassified employee, a misunderstood rule, or hours nobody was tracking. The Fair Labor Standards Act (FLSA) sets the federal floor, and getting it wrong can mean back pay, penalties, and lawsuits. Here’s the plain-English version.
The federal rule in one paragraph
Under the FLSA, nonexempt employees must be paid at least 1.5 times their regular rate for every hour worked over 40 in a single workweek. A workweek is any fixed, recurring 168-hour period — it doesn’t have to be Monday to Sunday, but you can’t average hours across two weeks to dodge overtime.
Who must be paid overtime
The key question is whether an employee is exempt or nonexempt. Exempt employees (executive, administrative, professional, and a few other categories) must meet both a duties test and a salary test — currently a salary of at least $684 per week ($35,568 per year) under federal rules. Everyone else is nonexempt and overtime-eligible, no matter what their job title says. Paying someone a salary does not automatically make them exempt. Read our full breakdown: exempt vs. nonexempt employees.
How to calculate overtime pay
The “regular rate” isn’t always the hourly wage. It’s total earnings in the workweek divided by total hours worked — which means nondiscretionary bonuses, shift differentials, and some commissions get folded in. Example: an employee earns $800 in salary plus a $100 weekly production bonus and works 45 hours. Regular rate = $900 ÷ 45 = $20/hour. Overtime premium = $10/hour × 5 overtime hours = $50. Total pay = $950.
5 overtime mistakes small businesses make
- Misclassifying employees as exempt. Job titles don’t determine exemption — duties and salary do.
- Giving comp time instead of overtime. Private-sector employers generally can’t substitute time off for overtime pay.
- Averaging hours across pay periods. Overtime is calculated per workweek, even if you pay biweekly.
- Leaving bonuses out of the regular rate. Most nondiscretionary bonuses must be included.
- Ignoring off-the-clock work. If nonexempt employees answer emails or finish tasks after hours, that time counts.
State overtime rules may be stricter
Some states add daily overtime (California requires it after 8 hours in a day), lower exemption thresholds, or broader coverage. Federal law is the floor, not the ceiling — always check your state’s wage and hour rules.
Put it in writing
Your employee handbook should state your workweek definition, how overtime is approved, and that all hours worked must be recorded. And make sure your timesheets actually capture every hour.
FAQ
Do salaried employees get overtime? Only if they’re nonexempt. A salary alone doesn’t remove the overtime obligation.
Can I require overtime? Generally yes — employers can require overtime work, though some states limit mandatory overtime in specific industries like healthcare.
What if an employee works overtime without approval? You still have to pay them. You can discipline for violating policy, but you can’t withhold the wages.
This is general information, not legal advice. Wage and hour rules change — confirm current thresholds with the Department of Labor and your state agency.