Overtime sounds straightforward — 1.5x for hours over 40. In practice, it trips up a lot of small business owners, especially when employees have variable pay, multiple rates, or bonuses in the mix.
The Basic Rule
Under the Fair Labor Standards Act (FLSA), non-exempt employees must receive overtime pay at 1.5 times their regular rate for all hours worked over 40 in a single workweek.
A workweek is any fixed, recurring 168-hour period (7 consecutive days). It doesn’t have to align with the calendar week — you define it, but once set, it must be consistent.
Step 1: Determine the Regular Rate of Pay
For a simple hourly employee, the regular rate is just their hourly wage. But if the employee earns anything beyond straight hourly pay — bonuses, shift differentials, commissions — those amounts must often be included in the regular rate.
What’s included in the regular rate:
- Hourly wages
- Non-discretionary bonuses (production bonuses, attendance bonuses, shift premiums)
- Commissions
What’s excluded:
- Discretionary bonuses (holiday gifts, spot bonuses)
- Overtime premiums already paid at 1.5x
- Expense reimbursements
- Employer contributions to retirement/health plans
Step 2: Calculate the Overtime Premium
Once you have the regular rate:
Overtime pay = (Regular rate × 0.5) × Overtime hours
Note: You’re only adding the half-time premium, because the employee has already been paid straight time for all hours worked (including the overtime hours).
Example: Straight hourly
An employee earns $20/hr and works 45 hours in a week.
- Straight-time pay: 45 × $20 = $900
- Overtime premium: 5 × ($20 × 0.5) = $50
- Total: $950
Example: Hourly + non-discretionary bonus
Same employee, $20/hr, 45 hours, plus a $100 production bonus for the week.
- Total straight-time earnings: $900 + $100 = $1,000
- Regular rate: $1,000 ÷ 45 hours = $22.22/hr
- Overtime premium: 5 × ($22.22 × 0.5) = $55.56
- Total: $1,055.56
Salaried Non-Exempt Employees
A common misconception: salaried employees are automatically exempt from overtime. That’s wrong. Salary alone doesn’t create exemption — the employee must also meet a duties test and earn above the salary threshold.
2025 FLSA salary threshold: $684/week ($35,568/year)
If a salaried employee earns less than this, they are non-exempt and entitled to overtime regardless of their job title.
For salaried non-exempt employees, calculate the regular rate using the fluctuating workweek method or divide the weekly salary by the number of hours it’s meant to compensate.
Overtime Exemptions: Who Qualifies
To be exempt from overtime, an employee must meet both conditions:
- Earn at least $684/week on a salary basis
- Primarily perform exempt duties (executive, administrative, professional, or outside sales)
The duties test is strict — just having “manager” in a title doesn’t create exemption. A manager who primarily does the same work as their team members likely isn’t exempt.
When in doubt, treat employees as non-exempt. The cost of misclassification — back wages, liquidated damages, attorney fees — far exceeds the cost of paying overtime.
New England State Rules
All six New England states follow FLSA rules at minimum. Some add requirements:
| State | Notable rule |
|---|---|
| Massachusetts | Daily overtime for domestic workers (after 8 hrs/day) |
| Connecticut | No daily overtime requirement; weekly 40-hour rule applies |
| Rhode Island | Weekly 40-hour rule; Sunday/holiday premium for retail (1.5x) |
| Vermont | Standard federal rules |
| New Hampshire | Standard federal rules |
| Maine | Standard federal rules |
Rhode Island retail note: Retail employees working on Sundays or holidays must be paid at least 1.5x, even if they haven’t hit 40 hours for the week. This applies to employers with 25+ employees.
Common Mistakes
- Averaging hours across two weeks. Overtime is calculated per workweek, not biweekly. Two 30-hour weeks don’t cancel out one 50-hour week.
- Forgetting bonuses in the regular rate. Non-discretionary bonuses must be factored in, which retroactively changes the overtime rate.
- Misclassifying employees as exempt. Always apply the duties test, not just the salary test.
- Comp time instead of overtime pay. Private employers cannot substitute compensatory time off for overtime pay. Only public employers can do this under specific conditions.
Use the Calculator
The OtterDesk payroll calculator handles overtime automatically — enter regular hours and overtime hours separately and it calculates the correct premium pay including FICA and withholding on the full amount.