Overtime:
Definition, Comparison & Uses

Overtime is the amount of time someone works beyond normal working hours, typically exceeding 40 hours in a workweek. In the United States, the Fair Labor Standards Act (FLSA) requires covered employers to pay non-exempt employees at least one and one-half times their regular rate of pay for hours worked over 40 in a workweek. Normal working hours are determined by custom, industry practices, legislation, or agreements between employers and workers.

Overtime pay compensates employees for the additional hours they contribute beyond their standard schedule. The FLSA applies to employees in industries engaged in or producing goods for interstate commerce, covering most businesses with at least $500,000 in annual sales. The Act establishes a standard 40-hour workweek, and any hours beyond this threshold qualify as overtime for eligible employees.

Related terms: time and a half, non-exempt employee, exempt employee, workweek, Fair Labor Standards Act

Eligibility for overtime pay depends on employee classification under the Fair Labor Standards Act. Non-exempt employees are entitled to overtime compensation, while exempt employees generally do not receive overtime pay. Non-exempt employees are typically paid hourly and must receive overtime at a rate of at least one and one-half times their regular hourly wage for any hours worked over 40 in a workweek.

Exempt employees fall into specific categories including executive, administrative, professional, outside sales, and certain computer employees. To qualify as exempt, employees must meet specific criteria regarding their job duties and receive a salary that meets or exceeds the threshold set by the Department of Labor. As of 2021, salaried workers earning $684 per week or more (equivalent to $35,568 per year) are exempt from overtime pay. Independent contractors are not eligible for overtime pay under the FLSA because they are considered self-employed rather than employees.

Agricultural workers are also not required to receive overtime pay under federal law, though state laws may provide additional protections. The nature of the job determines overtime entitlement, not employment status or field of work.

Overtime pay is calculated using a specific formula that multiplies the employee's regular rate by 1.5 for all overtime hours worked. The calculation involves 5 steps:

1. Determine the employee's regular rate of pay by identifying their hourly wage (for salaried employees, divide weekly salary by expected work hours, typically 40)
2. Calculate the overtime rate by multiplying the regular hourly rate by 1.5
3. Determine the number of overtime hours worked (total hours minus 40 in a workweek)
4. Calculate overtime pay by multiplying overtime hours by the overtime rate
5. Add regular pay and overtime pay for total compensation

For example, an employee with a regular hourly rate of $20 who works 45 hours in a week would earn $800 in regular pay (40 hours × $20) plus $150 in overtime pay (5 hours × $30 overtime rate), totaling $950. Any applicable special rate supplement or locality payment must be included in the total remuneration and straight time rate when computing overtime pay under the FLSA.

Under FLSA regulations, overtime pay is determined by multiplying the employee's straight time rate of pay by all overtime hours worked plus one-half of the employee's hourly regular rate of pay times all overtime hours worked. The hourly regular rate is computed by dividing total remuneration paid in the workweek by the number of hours for which compensation is paid.

Overtime hours and overtime pay are distinct but related concepts. Overtime hours refer to any hours worked beyond the standard work schedule, typically more than 40 hours in a single workweek. Some industries or employers have different thresholds, such as daily overtime for working more than 8 hours in a day, depending on local labor laws and company policies.

Overtime pay is the additional compensation employees receive for working those overtime hours. Under the Fair Labor Standards Act, non-exempt employees must be paid at least one and one-half times their regular hourly rate for overtime hours. This higher rate is commonly called time and a half. The distinction is important because overtime hours represent the physical time worked, while overtime pay represents the financial compensation earned at the premium rate.

The Fair Labor Standards Act does not require overtime pay specifically for work on Saturdays, Sundays, holidays, or regular days of rest. Extra pay for working weekends or nights is a matter of agreement between the employer and employee. Overtime is only required when an employee works more than 40 hours in a workweek, regardless of which days those hours fall on.

However, if overtime hours are worked on weekends or holidays, employers must pay the overtime rate. For example, if an employee has already worked 40 hours Monday through Friday and then works on Saturday, those Saturday hours qualify for overtime pay because they exceed the 40-hour threshold. Some employers voluntarily offer premium pay such as double time for Sunday work or holiday work, but this is not mandated by federal law unless it is part of an employment agreement or collective bargaining contract.

While the Fair Labor Standards Act establishes federal overtime standards, states have enacted their own laws that can provide additional protections beyond federal requirements. Employers must comply with both federal and state law, and when laws differ, the law most favorable to the employee applies.

California has the strictest overtime laws in the United States. California employers must pay 1.5 times the regular rate for hours worked over 8 in a day or 40 in a week, and double the regular pay rate for hours worked over 12 in a day or more than 8 hours on the seventh consecutive workday. Several other states have daily overtime rules beyond federal requirements:

• Alaska requires 1.5 times regular pay for hours over 8 in a day
• Colorado requires 1.5 times regular pay for hours over 12 in a day or 12 consecutive hours
• Nevada requires 1.5 times regular pay for hours over 8 in a day for employees earning less than 1.5 times minimum wage
• Oregon requires 1.5 times regular pay for hours over 10 in a day for mill, factory, and manufacturing jobs, or 8 hours in timber jobs
• Florida requires overtime for manual laborers working more than 10 hours in a day

Federal law only mandates weekly overtime limits of 40 hours, so these daily thresholds represent more generous state protections. The differences between California and federal overtime law are particularly significant regarding exempt employee classifications, where California requires workers to spend more than half their time on exempt duties to qualify for the exemption.

Not all salaried employees are exempt from overtime. Eligibility depends on specific job duties and salary level. Exempt employees such as those in executive, administrative, or professional roles generally do not qualify for overtime pay, but they must meet specific criteria to be classified as exempt.

To qualify as exempt, salaried employees must pass three tests based on salary basis, duties, and salary level. Employees must receive a salary that meets or exceeds the Department of Labor threshold (currently $684 per week or $35,568 annually) and perform specific job functions. Executive employees must supervise at least two persons, have hiring and firing authority, and make operational decisions. Administrative workers must perform non-manual labor related to business operations. Professional employees must possess advanced knowledge in a specialized field.

In January 2020, exempt employees earning less than $684 per week became eligible for overtime pay. If a salaried employee does not meet all exemption criteria, they are classified as non-exempt and entitled to overtime compensation for hours worked beyond 40 in a workweek.

Time off in lieu (TOIL), also called compensatory time or comp time, is a work schedule arrangement that allows or requires workers to take time off instead of receiving overtime pay. A worker may receive overtime pay plus equal time off for each hour worked on certain agreed days, such as public holidays.

In the United States, comp time arrangements are currently legal in the public sector but not in the private sector. Non-exempt private sector workers must receive at least one and one-half times their normal hourly wage for hours beyond 40 in a workweek and cannot substitute paid time off for overtime pay. For example, a worker who clocks 48 hours in one week cannot forgo the overtime pay and instead take paid hours off at a future date.

In other jurisdictions such as Canada, employers might be required to pay overtime at the higher rate but also be allowed to require time off in lieu at the normal rate. An employee might work 48 hours one week and 32 hours the next, receiving an extra amount equivalent to 4 hours of work. In Australia, time off in lieu arrangements are common in both private and public sectors.

Nondiscretionary bonuses are bonuses that are promised or expected as part of an employee's compensation. Under the Fair Labor Standards Act, these bonuses must be included in the calculation of the regular rate of pay when computing overtime. However, nondiscretionary bonuses do not count toward determining whether the salary threshold for overtime exemption has been met.

When calculating overtime, employers must factor nondiscretionary bonuses into the total remuneration and hourly regular rate of pay. The FLSA requires bonus payments to be included as part of an employee's regular rate when computing overtime pay, with some exceptions. This means the overtime rate calculation becomes more complex when bonuses are involved, as the regular rate increases and therefore the time-and-a-half overtime rate also increases.

The Fair Labor Standards Act does not limit the number of hours employees aged 16 and older may work in any workweek. While the Act requires overtime pay for hours beyond 40 per week, it does not cap total working hours. Employers can require employees to work as many hours as needed, provided they pay the required overtime rate for hours exceeding 40.

However, some states and international jurisdictions have implemented maximum working hour restrictions. The European Union directives require a maximum average working week of 48 hours (including overtime) over a 17-week reference period, minimum daily rest of 11 consecutive hours in every 24-hour period, and minimum weekly rest of 24 hours plus 11 hours daily rest in every 7-day period. In Japan, the Labour Standards Act provides for an 8-hour workday and 40-hour workweek, with overtime agreements limited to no more than 15 hours per week, 45 hours per month, and 360 hours per year.

Part-time employees are entitled to overtime pay if they work more than 40 hours in a workweek. The same rules that apply to full-time employees regarding overtime eligibility and compensation also apply to part-time employees. There is no distinction in overtime law based on part-time versus full-time status.

A part-time employee classified as non-exempt must receive at least one and one-half times their regular hourly rate for any hours worked over 40 in a workweek. For example, a part-time employee normally scheduled for 20 hours per week who works 45 hours in a particular week would receive overtime pay for 5 hours at the time-and-a-half rate. The classification as part-time does not exempt an employee from overtime protections under the Fair Labor Standards Act.

Overtime is often compared to 3 related compensation concepts:

Overtime vs. Double Time

Overtime pay is calculated at 1.5 times the regular rate for hours beyond 40 in a workweek, while double time pays twice the regular rate. The Fair Labor Standards Act does not require double time pay. Double time is typically a matter of agreement between employer and employee, often appearing in union contracts. Some factories pay double time for Sunday work, and California requires double time for hours over 12 in a day or more than 8 hours on the seventh consecutive workday.

Overtime vs. Time Off in Lieu

Overtime provides financial compensation at a premium rate, while time off in lieu allows workers to take paid time off instead of receiving overtime pay. In the United States, TOIL arrangements are legal in the public sector but not in the private sector, where non-exempt employees must receive monetary overtime pay. In other jurisdictions like Canada and Australia, employers may offer or require time off in lieu, sometimes at the higher rate and sometimes at the normal rate depending on local regulations.

Overtime vs. Shift Differential Pay

Overtime pay compensates employees for working beyond the standard 40-hour workweek, while shift differential pay compensates for working during less desirable hours such as nights, weekends, or holidays. The FLSA requires overtime pay for non-exempt employees but does not require extra pay for weekend or night work. Shift differential is a matter of agreement between employer and employee. Employees can receive both overtime pay and shift differential simultaneously when working overtime during premium shifts.