What is overtime pay?

Overtime pay is the premium compensation required when non-exempt employees work more than 40 hours in a workweek. Federal law requires overtime at 1.5 times the regular hourly rate. Some states require daily overtime after 8 hours or double time after 12 hours. Exempt employees, typically salaried professionals meeting specific duties and salary tests, do not qualify for overtime.

Calculating regular rate for overtime

The regular rate includes base pay plus non-discretionary bonuses, shift differentials, and certain other compensation. Divide total compensation for the week by hours worked to find the regular rate, then multiply by 1.5 for overtime hours. Getting this calculation wrong is a common source of wage and hour claims against employers.

Managing overtime costs

Track hours in real time rather than discovering overages after the fact. Set approval requirements for overtime before it occurs. Evaluate whether hiring additional staff costs less than regular overtime. For project-based work, factor potential overtime into project budgets and pricing. Chronic overtime signals staffing or scoping problems worth addressing.