Overtime pay is additional compensation employees receive for working beyond certain hours. Under the federal Fair Labor Standards Act (FLSA), covered, nonexempt employees generally must receive at least 1.5 times their regular rate of pay for hours worked beyond 40 in a workweek.

Some states, including California, Alaska, Colorado, and Nevada, have additional daily overtime requirements.

What is overtime? Who is eligible to receive it? And how is it calculated? For employers, understanding these rules is essential to paying employees correctly and avoiding wage-and-hour violations.

Here's how overtime pay works in 2026, which employees qualify, how to calculate overtime, and what federal and state laws require. 

Key Takeaways

Here are four important things employers should know about overtime pay in 2026:

• Federal Overtime Pay — Covered, nonexempt employees generally earn at least 1.5 times their regular rate for hours worked beyond 40 in a workweek.
• Overtime Exemptions — The standard federal salary threshold for most executive, administrative, and professional exemptions is $684 per week, or $35,568 annually. Employees must also meet applicable salary-basis and duties requirements.
• State Overtime Laws — California, Alaska, Colorado, and Nevada have additional daily or consecutive-hours overtime requirements, subject to specific conditions and exceptions.
• Overtime Taxes — Overtime pay remains taxable. However, eligible employees can claim a federal income tax deduction for certain qualified overtime premiums earned from 2025 through 2028, subject to limits.

How Does Overtime Work Under Federal Law?

The FLSA establishes federal minimum wage and overtime requirements for covered employees.

Under the FLSA, most covered employees who are not exempt from overtime must receive at least time and a half for hours worked beyond 40 in a workweek.

For example, an eligible employee earning $20 per hour would generally receive $30 per hour for overtime.

The U.S. Department of Labor (DOL) establishes several important rules:

• A Workweek Contains 168 Hours — A workweek is a fixed, recurring period of seven consecutive 24-hour days. It doesn't have to begin on Sunday or Monday.
• Overtime Is Based on Hours Worked — Federal overtime generally applies after 40 hours worked during a single workweek, not after 40 hours within an individual pay period.
• Workweeks Cannot Be Averaged — Employers generally cannot combine a 50-hour week and a 30-hour week to avoid paying overtime.
• Weekend and Holiday Work Doesn't Automatically Qualify — The FLSA doesn't require additional pay solely because an employee works on a Saturday, Sunday, holiday, or regular day off.
• Overtime Must Be Paid Promptly — Overtime compensation is generally due on the regular payday for the pay period in which it was earned.
• No General Federal Weekly Hours Limit — Federal law generally does not limit weekly work hours for employees age 16 or older, although other applicable restrictions may apply.

These are federal minimum standards. State laws, employment agreements, and certain industry-specific regulations may provide greater protections.

Employers must also correctly classify their workers. An employee who qualifies for an overtime exemption may not be entitled to time-and-a-half pay under the FLSA, while a nonexempt employee generally is.

For more information, review the Department of Labor's overtime guidance.

Is Overtime Based on 40 Hours or 80 Hours?

Under federal law, overtime is generally based on 40 hours worked in one workweek, even when employees receive their paychecks every two weeks.

For example, consider an employee who works the following schedule:

• Week One: 50 hours worked.
• Week Two: 30 hours worked.
• Total Biweekly Hours: 80 hours.
• Overtime Owed: 10 hours from the first week.

Even though the employee worked 80 hours over two weeks, the employer cannot average the hours into two 40-hour weeks to avoid overtime.

One exception applies to qualifying hospitals and residential care establishments. Under Section 7(j) of the FLSA, an employer may use a fixed, regularly recurring 14-day work period if it has a prior agreement or understanding with affected employees. It must pay overtime for hours worked beyond eight in a workday and beyond 80 during the 14-day period, without double-counting the same overtime hours.

For most businesses, however, the standard federal calculation remains 40 hours per workweek.

How to Calculate Overtime Pay

Calculating overtime pay begins with determining the employee's regular rate of pay and the number of qualifying overtime hours.

For employees receiving a single hourly rate without additional compensation affecting the calculation, the basic formula is:

Overtime Hourly Rate = Regular Hourly Rate × 1.5

Overtime Pay = Overtime Hours × Overtime Hourly Rate

For example, an employee earning $15 per hour has an overtime rate of $22.50 per hour.

Let's say that employee works 45 hours in a workweek.

The employee earns $712.50 before taxes and other payroll deductions.

This example assumes the employee is covered by the standard federal overtime rules and receives no additional compensation that affects the regular rate.

What Counts in the Regular Rate of Pay?

The regular rate of pay isn't always identical to an employee's stated hourly wage.

Under the FLSA, the regular rate generally includes compensation an employee receives for work, except for payments specifically excluded by law.

Compensation that usually counts includes:

• Hourly wages and other regular earnings
• Shift differentials
• Nondiscretionary bonuses
• Commissions
• Certain incentive payments

Payments that may be excluded under the applicable rules include:

• Qualifying discretionary bonuses
• Gifts that meet statutory requirements
• Reimbursements for legitimate business expenses
• Certain holiday, vacation, and leave payments for time not worked

For example, an employee earning $20 per hour with a $2 shift differential may have a regular rate of $22 per hour for qualifying hours.

That higher rate generally must be considered when calculating overtime.

The distinction is important because using only base wages can result in underpaid overtime.

Overtime Example for a Salaried Nonexempt Employee

Employees receiving salaries aren't automatically exempt from overtime.

For example, consider a salaried nonexempt employee who receives $800 per week, with the salary intended to compensate for a standard 40-hour workweek.

The employee works 46 hours.

First, determine the equivalent hourly rate:

$800 ÷ 40 = $20 per hour

Then calculate overtime:

6 overtime hours × $30 = $180

The employee's total gross pay for the week is:

$800 + $180 = $980

This example assumes the weekly salary covers only the first 40 hours and that no additional compensation affects the regular rate.

Other lawful salary arrangements, including certain fluctuating-workweek arrangements, can require different calculations.

Who Is Exempt From Overtime?

Not every employee is entitled to overtime pay under the FLSA.

Certain employees may qualify for exemptions based on their compensation, job duties, or the nature of their employment. One of the most common exemptions applies to qualifying executive, administrative, and professional employees.

In 2026, most employees covered by these federal exemptions must generally:

• Receive at least $684 per week, equivalent to $35,568 annually.
• Be paid on a salary basis, subject to specific exceptions.
• Perform duties that satisfy the applicable executive, administrative, or professional exemption test.

Meeting the salary threshold alone does not make an employee exempt from overtime.

The employee's actual job responsibilities matter, not just their title.

The federal highly compensated employee exemption has a separate total annual compensation threshold of $107,432, along with additional requirements.

Employers may encounter older references to a $58,656 annual salary threshold. That increase was part of a 2024 Department of Labor rule vacated by a federal court in November 2024.

As a result, the Department of Labor is applying the earlier federal thresholds.

Some states establish higher salary levels or stricter duties requirements, so businesses must review both federal and applicable state laws.

Other Common Overtime Exemptions

The FLSA contains additional exemptions that may apply to certain workers or occupations, including:

1. Qualifying outside sales employees.
2. Certain computer professionals who satisfy the applicable duties and compensation tests.
3. Certain transportation employees covered by the Motor Carrier Act exemption.
4. Certain agricultural workers.
5. Qualifying seasonal amusement or recreational establishment employees.
6. Certain small newspaper employees and newspaper delivery workers.
7. Some employees working in fishing and maritime occupations.
8. Certain live-in domestic service workers.
9. Qualifying babysitters providing casual services.
10. Certain employees of qualifying seasonal camps and educational conference centers.

These are examples, not blanket exemptions for everyone working in those industries.

Some FLSA exemptions remove only overtime protections, while others affect both minimum wage and overtime requirements.

What about independent contractors?

Properly classified independent contractors are not employees covered by the FLSA's employee overtime requirements. However, businesses cannot avoid overtime obligations simply by labeling an employee an independent contractor.

Worker classification depends on the actual working relationship and applicable law.

Employers should review the Department of Labor's exemption guidance before treating employees as exempt.

Do Salaried Employees Get Overtime?

Yes. Salaried employees can qualify for overtime pay. Receiving a salary does not automatically exempt someone from the Fair Labor Standards Act's overtime requirements.

An employee may receive a fixed weekly salary and still be classified as nonexempt.

For example, an administrative assistant earning a $45,000 annual salary may qualify for overtime if their job duties do not satisfy an applicable exemption, even though their salary exceeds the standard federal threshold.

For most executive, administrative, and professional exemptions, employers must evaluate both:

• Compensation Requirements — Whether the employee meets the applicable salary-basis and salary-level requirements.
• Job Duties — Whether the employee's primary responsibilities satisfy the relevant exemption test.

Job titles, such as manager, supervisor, or administrator, do not automatically establish exempt status.

Salaried nonexempt employees generally must receive overtime compensation for qualifying hours beyond 40 in a workweek, although the calculation depends on the salary arrangement and applicable law.

Employers should also remember that the federal minimum wage and overtime protections generally apply to covered private-sector employees as well as many public-sector employees.

The key distinction is whether an employee is legally exempt, not whether the employee is paid hourly or receives a salary.

Overtime Laws by State

The Fair Labor Standards Act establishes minimum overtime standards for covered employees throughout the United States.

However, individual states may impose additional overtime requirements, including daily overtime, higher salary thresholds for exempt employees, or special rules for certain industries.

When federal and state laws both apply, employers must satisfy the applicable requirements that provide employees the greater protection.

Most states follow the general federal standard of overtime after 40 hours in a workweek for covered nonexempt employees. However, some states have separate thresholds, exemptions, or calculation methods.

The table below summarizes the general overtime framework in each state. It is intended as an overview, not a substitute for reviewing current state labor department guidance.

Which States Have Daily Overtime?

Four states have broadly applicable daily or consecutive-hours overtime provisions that employers should pay particular attention to:

• Alaska — Generally requires overtime after eight hours in a day or 40 hours in a week for workers covered by the state law. Certain smaller employers and qualifying flexible schedules are treated differently.
• California — Generally requires time-and-a-half after eight hours in a workday and double-time after 12 hours, with additional seventh-consecutive-day rules. Exemptions and authorized alternative workweek schedules may change the calculation.
• Colorado — Generally requires overtime after 40 hours in a workweek, 12 hours in a workday, or 12 consecutive hours worked, whichever produces the applicable entitlement.
• Nevada — Generally requires daily overtime after eight hours for employees earning less than 1.5 times the applicable state minimum wage, subject to exemptions and qualifying schedules. Weekly overtime also applies.

For example, California's daily overtime rules may require additional pay when a covered employee works 10 hours in a single day, even if the employee doesn't work more than 40 hours that week.

Texas, by comparison, does not have a generally applicable daily overtime rule for private-sector employees. Most covered Texas employees follow the federal 40-hour workweek standard.

Employers operating in multiple states should review applicable daily, weekly, consecutive-day, and industry-specific requirements before processing payroll.

What Overtime Law Doesn't Require

Federal overtime law establishes minimum compensation requirements, but employers sometimes confuse those standards with additional benefits or company policies.

Under the FLSA, employers generally are not required to provide:

• Double-Time Pay — Federal law generally requires time-and-a-half overtime compensation, not double-time. However, some states, including California, require double-time under certain circumstances.
• Extra Weekend Pay — Employees do not automatically receive overtime because they work Saturday or Sunday. Overtime is generally based on hours worked during the established workweek.
• Extra Holiday Pay — Working a holiday does not automatically trigger additional compensation under federal overtime law.
• Night-Shift Premiums — The FLSA does not generally require higher pay simply because employees work evenings or overnight shifts.
• Overtime Credit for Paid Time Off — Paid vacation, holidays, and sick leave generally do not count as hours worked when determining federal overtime eligibility.

For example, an employee who works 36 hours and receives eight hours of paid holiday time is generally not entitled to federal overtime based solely on those 44 paid hours.

The employee actually worked 36 hours. However, employers may voluntarily provide additional compensation through their policies, employment agreements, or collective bargaining agreements.

These benefits can help attract employees and encourage retention, even when federal law doesn't require them.

Businesses must also comply with any applicable state or local requirements that provide greater employee protections.

Is Overtime Pay Taxed?

Yes. Overtime compensation remains taxable income, but a federal tax deduction introduced in 2025 allows eligible employees to deduct certain qualified overtime earnings.

The deduction was established under the One Big Beautiful Bill Act and applies to tax years 2025 through 2028.

It does not make all overtime earnings tax-free.

Under the law, the deduction generally applies to the portion of overtime compensation paid above an employee's regular rate that is required by the FLSA.

For example, consider an employee earning $20 per hour who receives $30 per hour for five qualifying overtime hours.

The employee earns $150 in overtime compensation, but only the additional $10 per hour, or $50 in this example, generally qualifies for the federal deduction.

Key rules include:

• The maximum annual deduction is $12,500 for eligible individuals or $25,000 for married couples filing jointly.
• The deduction begins to phase out when modified adjusted gross income exceeds $150,000, or $300,000 for joint filers.
• The deduction is available to eligible taxpayers whether they itemize deductions or claim the standard deduction.
• Overtime compensation generally remains subject to applicable federal income tax withholding and Social Security and Medicare taxes.
• Premiums required only by state law, rather than by the FLSA, do not necessarily qualify for the federal deduction.

Beginning with tax year 2026, employers must separately report qualified overtime compensation on Form W-2, Box 12, using Code TT.

For employers, accurate overtime tracking is now important for both wage compliance and tax reporting. Businesses should distinguish total overtime earnings from the qualified premium portion when maintaining payroll records.

How to Track Overtime and Stay Compliant

Overtime compliance starts with accurate employee time records.

Employers need to know how many hours nonexempt employees work, when their workweeks begin and end, and whether any additional compensation affects their regular rate.

The Department of Labor requires covered employers to maintain certain payroll and timekeeping records.

These generally include:

• Employee identifying information and applicable pay rates.
• The time and day the employee's workweek begins.
• Hours worked each day and total hours worked each workweek.
• Straight-time earnings and overtime compensation.
• Additions to or deductions from wages.
• Total wages paid and the dates of payment.

Most payroll records must be retained for at least three years, while certain supporting time records generally must be kept for at least two years. Some state laws require longer retention periods.

Employers should also establish a consistent process for reviewing time sheets before payroll is finalized.

For example, an employee scheduled for 40 hours may work additional time to finish an assignment. Those hours generally need to be recorded and paid even if they were not approved in advance, when the employer knew or should have known the work was performed.

A written overtime approval policy can help control labor costs, but it does not eliminate the obligation to pay for compensable work.

Take Control of Overtime With OnTheClock

Unexpected overtime can increase labor costs and complicate payroll. Without accurate time tracking, it can be difficult to see when employees are approaching overtime or working beyond their scheduled hours.

OnTheClock helps you stay ahead of overtime before it becomes an expensive surprise.

With OnTheClock, you can:

• Monitor Overtime: Set up alerts to help identify when employees approach configured overtime thresholds.
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• Manage Labor Costs: Use reports to spot overtime trends and support scheduling decisions.

More than 16,000 companies trust OnTheClock for employee time tracking, scheduling, and payroll.

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