How to calculate overtime pay: guide, formulas and examples

Published Friday 12 December 2025

Table of contents

• What is overtime pay?
• Overtime laws in the US
• How to calculate overtime pay
• Overtime rate examples for common hourly wages
• Tips for calculating overtime pay
• FAQs on overtime pay

Key takeaways

• Employers must pay overtime when non-exempt employees work more than 40 hours a week. You can define any 7-day period as a work week, but you must be consistent.
• Apply the overtime formula of hourly rate × 1.5 × overtime hours worked for any non-exempt employee who works more than 40 hours in a single work week, regardless of whether they are hourly, salaried, or part-time.
• Include non-discretionary bonuses when calculating overtime pay by determining an adjusted hourly rate that incorporates the bonus amount, but exclude discretionary bonuses like holiday gifts or employee-of-the-month awards.
• Maintain accurate time tracking to ensure compliance, as employers must pay overtime for all hours worked over 40 regardless of whether the overtime was pre-approved.

What is overtime pay?

is compensation at 1.5 times an employee's regular hourly rate for hours worked over 40 in a week. The Fair Labor Standards Act (FLSA) requires this time-and-a-half rate for all non-exempt employees, and it's a critical rule to follow, as a government report found that nearly 85 percent of FLSA violations were related to overtime.

Who qualifies for overtime pay?

Almost all employees paid hourly are entitled to overtime pay. Overtime pay for salaried employees is only required if the employees are non-exempt. Salaried blue-collar workers are usually entitled to overtime pay, while most salaried white-collar workers are exempt.

Overtime laws in the US

US overtime laws require employers to pay non-exempt employees 1.5 times their standard rate for hours over 40 per week under the FLSA.

Key requirements include:

• 40-hour threshold: Overtime applies after 40 hours in a single work week
• Flexible work week: You can define any 7-day period as your work week
• Consistency requirement: Once set, your work week must remain the same

Examples of a 7-day work week include Sunday at midnight to Saturday at 11:59 pm, or Monday at 8 am to the following Monday at 7:59 am.

Exemptions from overtime pay

The FLSA says that salaried employees are exempt from the overtime rules if they earn at least $684 per week and work in an executive, administrative, professional, or creative role. As of 2025, there are overtime exemptions for outside sales employees and skilled computer employees who are paid at least $27.63 an hour or $684 a week.

Check out the US Department of Labor's fact sheet on exempt employees.

Some states have stricter overtime rules. For example, in California you must pay overtime to non-exempt employees if they work more than 8 hours a day. If they work more than 12 hours, you must pay double their hourly rate. If an employee works 6 days in a row, you must also pay double time for any more than 8 hours on the seventh day.

For your state's overtime rules, check with your state's department of labor and employment. Here's more information from Bloomberg Law on overtime rules by state.

How to calculate overtime pay

The overtime pay formula is: Hourly rate × 1.5 × overtime hours worked = overtime pay

This formula applies to three main employee types:

• Hourly employees: Direct application of the formula
• Salaried employees: Must first calculate hourly rate from salary
• Bonus/commission employees: Requires adjusted hourly rate calculation

How to calculate overtime pay for hourly-rate employees

Calculate overtime for hourly employees using these steps:

1. Determine overtime hours: Subtract 40 from total hours worked
2. Apply the formula: Overtime hours × 1.5 × hourly rate

Here's an example calculation for an employee earning $20/hour working 45 hours in a work week:

• Overtime hours: 45 - 40 = 5 hours
• Overtime pay: 5 × 1.5 × $20 = $150

How to calculate overtime pay for salaried employees

Calculate overtime for salaried employees by first determining their hourly rate:

Formula: Annual salary ÷ 52 weeks ÷ 40 hours = hourly rate

Step-by-step process:

1. Convert salary to hourly: Use the formula above
2. Calculate overtime hours: Hours over 40 in the work week
3. Apply overtime rate: Hourly rate × 1.5 × overtime hours

Example: $52,000 salary = $1,000/week = $25/hour

• 50 hours worked = 10 overtime hours
• Overtime pay: 10 × 1.5 × $25 = $375

Overtime pay for bonus and commission-based employees

Bonus and commission calculations require including non-discretionary bonuses in the overtime rate calculation, but not discretionary bonuses.

Bonus types:

• Non-discretionary bonuses: Formula-based bonuses for quality, accuracy, or efficiency (include in overtime calculations)
• Discretionary bonuses: Unexpected awards like holiday bonuses or employee of the month (exclude from overtime calculations)

Here's how you calculate overtime for employees who receive non-discretionary bonuses or commissions:

(Total weekly earnings + bonus) ÷ total hours worked = adjusted hourly rate

Say an employee earns $20 per hour, works 50 hours during the week, and receives a $100 bonus for meeting a certain goal. Here's their adjusted hourly rate:

($20 x 50 hours + $100) ÷ 50 hours = $22.

The employee gets time-and-a-half for their overtime hours, but this time, don't use the time-and-a-half calculation. Why? Because you've already accounted for the base wage when you multiplied 50 hours by their hourly rate.

So now, you just need to calculate the extra they get on top. To do that, take the overtime hours and multiply them by the adjusted hourly rate, then multiply the result by 0.5:

(10 hours x $22) x 0.5 = $110

Now add this overtime pay to the rest of their pay:

$110 + ($20 x 50 hours) + $100 = $1210

Check out the U.S. Department of Labor's fact sheet about overtime pay formulas for bonuses and commissions.

Overtime rate examples for common hourly wages

Seeing the numbers can make the calculation clearer. Here are a few examples of how to calculate overtime pay based on common hourly wages.

What is overtime for $20 an hour?

If an employee earns $20 per hour, their overtime rate is $30 per hour ($20 x 1.5). For every hour of overtime they work, you'll pay them $30.

What is overtime for $25 an hour?

For an employee earning $25 per hour, the overtime rate is $37.50 per hour ($25 x 1.5). If they work two hours of overtime, their overtime pay would be $75 ($37.50 x 2).

Tips for calculating overtime pay

Ensure with these essential practices:

• Classify employees correctly: Verify exempt vs non-exempt status to avoid penalties
• Track all hours worked: Use time-tracking tools such as Xero Projects to monitor when employees exceed 40 hours
• Maintain consistent work weeks: Define your 7-day period and keep it uniform
• Apply correct formulas: Use appropriate calculations for hourly, salaried, and bonus employees
• Check state laws: Review local requirements that may exceed federal standards

FAQs on overtime pay

Here are answers to common questions about how overtime pay works for your employees:

Can employers refuse to pay unapproved overtime?

No. The FLSA requires payment for all overtime hours worked, regardless of pre-approval. Employers can require advance approval for overtime work, but must still pay overtime rates if employees work beyond 40 hours.

Do part-time employees qualify for overtime pay?

Yes. Your part-time employees qualify for overtime if they work more than 40 hours in a week, regardless of whether they are normally part time or full time.

Can employees waive their right to overtime pay?

No. Overtime is federal law. Even if an employee agrees to work overtime for their regular rate, their employer is still legally obligated to pay their overtime.

Is overtime pay different for night shifts or weekends?

No. Federal law does not have different overtime rates for night shifts or weekends, although employers can offer higher rates for these hours if they choose to.

Do independent contractors receive overtime pay?

No, independent contractors are not covered by the FLSA as they're not classed as employees. But if you misclassify employees as contractors you can be penalized and face extra taxes.

Read the IRS's worker classification 101 to check you're classifying workers correctly.

How does overtime work for remote employees?

The same rules apply to remote employees as for employees who work on site. All non-exempt employees must be paid time-and-a-half for all time worked over 40 hours in a week.

What happens if employers fail to pay overtime?

If you do not pay overtime correctly, you can face legal penalties including back wages, liquidated damages, and lawsuits. Each year, there are between 23,000 and 30,000 cases involving FLSA minimum wage and overtime issues. Employees can file complaints with the U.S. Department of Labor's Wage and Hour Division for investigation and enforcement.

Can an employer give extra time off instead of paying overtime?

No, employers cannot replace overtime pay with extra time off or other incentives. They must follow the FLSA's overtime rules.

Does overtime apply to employees with irregular work schedules?

Yes. Eligibility for overtime is based on total hours worked in a fixed 7-day work week, regardless of whether an employee's schedule varies from week to week. But there are exceptions for some industries.

Are there special overtime rules for healthcare, law enforcement, and emergency workers?

Yes, the FLSA has specific overtime rules for these workers. For instance, the 8/80 rule for nursing home and hospital employees requires you to pay overtime when an employee works over 8 hours in a day and 80 hours in a two-week period, but only if you have an agreement with the employee - otherwise, you must pay overtime based on the standard OT rules.

Here are the FLSA rules for law enforcement and firefighters and the rules for healthcare employees.