How to Calculate Overtime for Salaried Employees

Many people assume that salaried employees are exempt from overtime pay, but under the Fair Labor Standards Act (FLSA), this is not always the case. The distinction between exempt and non-exempt employees is crucial. Exempt employees, often falling under "white collar" exemptions such as executive, administrative, or professional roles, do not qualify for overtime pay provided they meet certain criteria, including a salary basis test, a salary level test, and a duties test. As of March 2026, the minimum salary threshold for these exemptions is $684 per week or $35,568 annually. Non-exempt employees, however, are entitled to overtime pay for any hours worked over 40 in a workweek, calculated at a rate of at least 1.5 times their regular pay rate.

For employers, it is essential to correctly classify employees to avoid potential legal issues. Misclassification can lead to significant financial penalties and back pay liabilities. It is also important to note that state laws may impose higher salary thresholds or additional overtime requirements, which must be adhered to if they are more favorable than federal laws. Therefore, understanding both federal and state regulations is vital for compliance.

Calculating overtime for salaried non-exempt employees requires determining their regular rate of pay. This involves dividing the employee's weekly salary by the number of hours the salary is intended to cover, typically 40 hours. For example, a weekly salary of $1,200 equates to a regular rate of $30 per hour. The overtime rate is then calculated as 1.5 times this regular rate, resulting in $45 per hour for overtime work.

Once the overtime rate is established, employers need to track the actual hours worked over 40 in a workweek. If an employee works 42 hours, with 2 hours being overtime, their overtime pay would be calculated as 2 hours multiplied by the $45 overtime rate, totaling $90. Therefore, the total weekly pay would be their salary plus the overtime pay, which in this case would be $1,290.

This method ensures that employees are fairly compensated for additional work hours while keeping employers compliant with FLSA regulations.

For salaried non-exempt employees whose hours vary, the Fluctuating Workweek Method provides an alternative way to calculate overtime. This method allows for a fixed salary to cover all hours worked, with an additional half-time rate for hours over 40. To apply this, the regular rate of pay is calculated by dividing the weekly salary by the total hours worked in that week. For instance, a $900 salary divided by 55 hours results in a regular rate of $16.36 per hour.

The overtime premium rate in this method is half of the regular rate, meaning $8.18 per hour in this example. For 15 overtime hours, the premium pay would be 15 times $8.18, totaling $122.70. Adding this to the base salary gives a total weekly pay of $1,022.70. This approach benefits employers by offering a consistent salary model while still complying with overtime laws.

Employers must ensure this method is mutually understood and documented, as some states do not permit its use. Compliance with state laws is as critical as adhering to federal regulations.

Employers must navigate both federal and state overtime laws to ensure compliance, as state regulations can be more stringent. Some states, such as California, impose daily overtime rules requiring overtime wages for hours worked beyond a certain daily threshold, such as 8 hours per day, in addition to the weekly 40-hour federal standard. Moreover, California mandates double-time pay for over 12 hours worked in a day, which is unique among states.

Additionally, many states have set higher salary thresholds for overtime exemptions than those stipulated by the FLSA. For example, California requires exempt employees to earn at least twice the state minimum wage for a full-time job, which can exceed $112,065.20 annually for certain roles. Employers must stay informed about these regional differences to apply the most employee-favorable laws, thereby avoiding legal challenges and ensuring fair employee compensation.