Overtime Pay: What You Are Actually Owed

Under the Fair Labor Standards Act, non-exempt employees must be paid at least one and a half times their regular rate for hours worked over 40 in a workweek.

Two parts of that sentence cause almost all overtime disputes: what counts as your regular rate, and whether you are non-exempt in the first place.

The regular rate is not your hourly wage

This is the most commonly underpaid element of overtime, and it is usually an honest payroll error rather than anything deliberate.

Your regular rate includes your base hourly wage plus certain other earnings in that week:

• Non-discretionary bonuses — production, attendance and safety bonuses, anything promised in advance
• Shift differentials for nights or weekends
• Hazard pay
• Commissions
• On-call pay

If you earn $20 an hour and receive a $100 production bonus in a 45-hour week, your regular rate is not $20. It is $2,000 total straight-time pay divided by 45 hours, which raises the rate the overtime premium is calculated on.

Genuinely discretionary bonuses — a surprise holiday gift with no promise attached — are excluded. The test is whether it was promised or expected, not what the employer calls it.

Salaried does not mean exempt

Being paid a salary does not remove your right to overtime. Exemption requires meeting both tests:

The salary test — you must be paid at least the federal threshold on a salary basis. Several states set higher thresholds than the federal one, and where they differ the higher figure applies.

The duties test — your actual day-to-day work must fall within the executive, administrative, professional, computer or outside sales exemptions. Job titles are irrelevant. Someone called an "assistant manager" who spends most of their time stocking shelves is very likely non-exempt.

Misclassification is common, and it is the employer's obligation to get it right, not yours.

The workweek stands alone

Overtime is calculated per workweek — a fixed, recurring period of 168 consecutive hours. It cannot be averaged across two weeks.

If you work 50 hours one week and 30 the next, you are owed 10 hours of overtime for the first week. The 80-hour total across the pay period is irrelevant, even though you are paid biweekly.

The exception is a formal 8/80 arrangement, which is only available to hospitals and residential care facilities.

What does not count toward 40 hours

Overtime is based on hours actually worked. Paid time off, holidays and sick leave count toward your pay but not toward the 40-hour threshold.

Work 32 hours plus 8 hours of holiday pay in a week, then 4 more hours, and you have 36 hours worked. No overtime is owed federally, even though you were paid for 44 hours.

Daily overtime in some states

Federal law has no daily overtime requirement. Several states do.

California is the best known: over 8 hours in a day is time and a half, over 12 hours is double time, and the seventh consecutive day in a workweek carries its own rules. Alaska, Nevada and Colorado also have daily thresholds.

Where state and federal rules differ, whichever is more generous to the employee applies.

How overtime is taxed

Overtime pay is ordinary income. It is not taxed at a special rate.

What confuses people is withholding. Payroll systems annualise the current period's pay, so a week with heavy overtime looks like a much larger annual salary and withholding jumps accordingly. It evens out when you file, and any over-withholding comes back as refund.

Note that the IRS treats overtime premiums as supplemental wages, so if a premium is paid separately it may be withheld at the flat 22% rate.

If you think you are owed overtime

Keep your own record of hours worked. Contemporaneous notes carry real weight and are nearly impossible to reconstruct later.

Raise it with payroll first — most cases are genuine errors, particularly the regular rate calculation. If that does not resolve it, the Department of Labor's Wage and Hour Division handles complaints, and many states have their own labour agency with shorter timelines and broader protections.