Most employers assume that salaried employees are not entitled to overtime. That assumption is wrong more often than you’d expect. Under federal law, a salaried position does not automatically exempt anyone from overtime pay. What actually matters is a combination of how much the employee earns and what kind of work they do, and getting this classification wrong can result in years of back pay liability.
Below, we break down how overtime works for salaried employees, hourly workers and day-rate staff under the Fair Labor Standards Act (FLSA), with current thresholds, exemption categories, calculation examples, state rules that go beyond the federal minimum, and the new federal tax deduction for overtime pay that took effect in 2025.
- Who qualifies for overtime under the FLSA?
- Current federal salary threshold
- FLSA exemption categories
- How to calculate overtime for salaried employees
- Overtime for hourly employees
- Overtime for day-rate employees
- Other compensation types that affect overtime
- State overtime rules that go beyond federal law
- No tax on overtime: the 2025 federal deduction
- How to track overtime accurately
- FAQ
Who qualifies for overtime under the FLSA?
The Fair Labor Standards Act, on the books since 1938, requires employers to pay 1.5 times the regular rate for any hours a non-exempt employee works beyond 40 in a workweek. The word “non-exempt” does the heavy lifting here. Every FLSA-covered employee is entitled to overtime by default, unless their position satisfies all three of the following conditions:
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Salary basis test.
The employee receives a fixed, predetermined salary that does not get reduced based on the quality or quantity of work they do.
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Salary level test.
That salary meets or exceeds the minimum threshold the U.S. Department of Labor has set.
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Duties test.
The employee’s primary job duties fall into one of the recognized exemption categories (executive, administrative, professional, computer or outside sales).
All three. Not two out of three. A high salary alone does not make someone exempt, and neither does a job title. The DOL looks at the actual work performed, not what appears on a business card (U.S. Department of Labor, Fact Sheet #17A).
Current federal salary threshold
As of 2026, the federal salary threshold for overtime exemption is $684 per week ($35,568 per year). Any salaried employee earning less than this is automatically entitled to overtime, no matter what their job duties look like.
Employers may count nondiscretionary bonuses and incentive payments (including commissions) toward up to 10% of this threshold, as long as those payments are made at least once a year (DOL Fact Sheet #17A).
What happened to the 2024 rule?
The Department of Labor issued a final rule in April 2024 that would have raised the threshold in two stages: to $43,888 per year on July 1, 2024, and then to $58,656 on January 1, 2025. That would have made millions of additional workers eligible for overtime.
It did not survive. On November 15, 2024, a federal judge in the Eastern District of Texas vacated the entire rule, finding that it improperly elevated salary over job duties in determining exemption status (SHRM). The Trump administration then stopped defending the rule in court, the Fifth Circuit dismissed the appeal on May 5, 2026, and the DOL formally rescinded the 2024 rule effective May 15, 2026, republishing the 2019 regulations (Ogletree Deakins).
So the federal threshold sits at $35,568 per year. Several states, however, set their own higher thresholds, which we cover further down.
Highly compensated employees
A separate exemption exists for highly compensated employees (HCE) earning at least $107,432 per year in total annual compensation (which must include at least $684 per week on a salary or fee basis). These employees qualify for the exemption if they regularly perform at least one duty of an exempt executive, administrative or professional employee (DOL Fact Sheet #17A).
FLSA exemption categories
Earning above the salary threshold is necessary but not sufficient. The employee’s primary duties must also fit one of five categories the DOL defines:
Executive exemption. The employee manages the enterprise or a recognized department, regularly directs at least two full-time employees (or equivalent), and has meaningful authority over hiring and firing decisions.
Administrative exemption. The employee performs office or non-manual work directly related to management or general business operations and exercises discretion and independent judgment on significant matters.
Professional exemption. Two subcategories fall here. Learned professionals do work requiring advanced knowledge in a field of science or learning, acquired through prolonged specialized instruction (lawyers, doctors, engineers, accountants). Creative professionals do work requiring invention, imagination, originality or talent in a recognized artistic field.
Computer employee exemption. Systems analysts, programmers, software engineers and similar roles whose primary duties involve systems analysis, software design, development, documentation or testing. Computer employees can be paid on salary ($684/week minimum) or hourly at no less than $27.63 per hour.
Outside sales exemption. The employee’s primary duty is making sales or obtaining orders, and they regularly work away from the employer’s premises. There is no minimum salary requirement for outside sales employees.
How to calculate overtime for salaried employees
If a salaried employee fails any of the three exemption tests above, they get overtime for every hour beyond 40 in a workweek. The math works in four steps:
Step 1. Divide the annual salary by 52 to get the weekly salary.
Step 2. Divide the weekly salary by the number of hours the salary covers (usually 40) to get the regular hourly rate.
Step 3. Multiply the regular hourly rate by 1.5 to get the overtime rate.
Step 4. Apply the overtime rate to every hour beyond 40.
Calculation example
A non-exempt salaried employee earns $40,000 per year and worked 48 hours last week.
If the employment agreement specifies a different standard workweek (through a collective bargaining agreement, for example), use that number when converting the weekly salary to an hourly rate.
Overtime for hourly employees
Hourly overtime is the simplest calculation. The FLSA requires 1.5 times the regular hourly rate for every hour worked past 40 in a workweek.
Calculation example
An employee earns $22 per hour and works 46 hours in a week.
Where it gets less simple: when an employee receives a nondiscretionary bonus (tied to performance, attendance or similar criteria) during the pay period, that bonus must be folded into the regular rate before calculating overtime. Discretionary bonuses, like holiday gifts, are excluded.
Overtime for day-rate employees
Day-rate workers receive a fixed amount per day regardless of how many hours they actually work. To find the overtime rate, you first need to work backward to a regular hourly rate, then apply the standard 1.5x multiplier.
Calculation example
An employee earns $200 per day and works five days for a total of 50 hours in one week.
The employee already received $1,000 covering all 50 hours at the $20.00 regular rate, so the additional amount owed is only the overtime premium (the extra half). Because day-rate pay varies with hours worked, the regular rate and overtime premium need to be recalculated every week.
Other compensation types that affect overtime
Piece rate
When pay depends on units produced rather than time, divide total piece-rate earnings by total hours to get the regular rate. A worker who produces 200 pieces at $4 each over 45 hours earns $800 total, making their regular rate $17.78 per hour ($800 / 45). The overtime premium for the 5 hours above 40 is the extra half of the regular rate: $8.89 x 5 = $44.44. Total pay for the week: $844.44.
Same as day-rate, this calculation resets every week.
Bonuses and commissions
Nondiscretionary bonuses (tied to production, efficiency, attendance or similar criteria) must be included in the regular rate of pay before you calculate overtime. Add the bonus to total compensation for the relevant pay period, divide by total hours worked, and use the adjusted rate for the 1.5x calculation.
For commissions that span multiple weeks, the employer may need to go back and adjust the overtime premium once the commission amount is finalized.
Multiple pay rates
When someone works two different roles at different rates in the same workweek, the regular rate is typically calculated by combining total earnings from all positions and dividing by total hours worked. Some states handle this differently. Colorado, for instance, requires that overtime be based on the rate of the position the employee was working when the overtime hours occurred. This is one of many areas where checking your state’s rules pays off.
State overtime rules that go beyond federal law
The FLSA is a floor, not a ceiling. States can and do impose stricter overtime requirements, and in 2026 some of the differences are substantial.
Higher salary thresholds
Several states now require a much higher salary for employees to qualify as overtime exempt (Nextep, Genova Burns):
| State | 2026 weekly threshold | 2026 annual equivalent |
|---|---|---|
| Federal (FLSA) | $684 | $35,568 |
| California | $1,352 | $70,304 |
| Washington | $1,541.70 | $80,172 |
| Colorado | $1,111.23 | ~$57,784 |
| New York (NYC, large employers) | $1,200 | $62,400 |
When federal and state thresholds differ, the employer must apply whichever gives the employee more protection.
Daily overtime
Federal law only measures overtime on a weekly basis. Some states add daily triggers:
California requires 1.5x pay for hours beyond 8 in a single day and double time (2x) for hours beyond 12. If an employee works seven consecutive days, the first 8 hours on the seventh day are paid at 1.5x and any hours beyond 8 at 2x (California DLSE).
Colorado requires 1.5x pay for hours beyond 12 in a single day, or 12 consecutive hours even when the shift spans two calendar days. The employer pays based on whichever method (daily or weekly) results in higher total overtime, but cannot double-count the same hours (Colorado COMPS Order).
No tax on overtime: the 2025 federal deduction
Starting with the 2025 tax year, workers who earn FLSA overtime can deduct up to $12,500 ($25,000 on a joint return) of overtime premium pay from their federal taxable income.
A few things to know about how this works. The deduction covers only the premium portion of overtime, meaning the extra 0.5x in the 1.5x rate, not the full overtime amount. It applies specifically to overtime compensation earned under the FLSA, so the employee must be non-exempt. Income phase-out starts at $150,000 MAGI for single filers and $300,000 for joint filers. The deduction runs through the end of 2028.
What it does not do: eliminate payroll taxes. Social Security and Medicare still apply to every dollar of overtime pay. And unless your state has its own overtime tax break, state income taxes still apply too (IRS, Qualified Overtime Compensation Deduction Q&A).
Worth noting for salaried exempt employees: this deduction generally does not apply to you, because you do not receive FLSA overtime in the first place.
How to track overtime accurately
Tracking overtime in spreadsheets works until it doesn’t. Between varying pay rates, state daily overtime rules and the three-part exemption test, manual calculations create space for errors and, eventually, compliance problems.
actiTIME calculates overtime automatically and offers several ways to handle it depending on company policy. Overtime can be set to calculate automatically based on hours logged against an employee’s schedule, or employees can enter it themselves. You can also choose whether overtime is visible on the employee’s timesheet or only surfaces in reports.
Each employee gets a separate overtime pay rate alongside their regular and leave rates. Overtime costs feed directly into the Cost of Work Report, and the Time Balance and Overtime Report compares actual hours worked against scheduled hours across the team.
For employers who want to understand how overtime affects the bottom line, the Profit/Loss Report factors in overtime and leave costs alongside billable amounts, so you can see whether a project stays profitable even during high-overtime periods.
FAQ
Are all salaried employees exempt from overtime?
No. Salary alone does not determine exemption. Under the FLSA, a salaried employee must earn at least $684 per week ($35,568 per year), be paid on a true salary basis (meaning their pay does not get reduced for partial-day absences), and perform duties that fall into one of the recognized exemption categories: executive, administrative, professional, computer or outside sales.
What is the current federal salary threshold for overtime exemption?
$684 per week, or $35,568 per year. The DOL attempted to raise it in 2024, but a federal court vacated the entire rule in November 2024 and the 2019 threshold remains in effect as of 2026.
Can a salaried exempt employee ever receive overtime?
An employer can voluntarily pay overtime to exempt employees, but the FLSA does not require it. On the other hand, if an employer misclassifies a non-exempt worker as exempt, that worker is entitled to back pay for all unpaid overtime, potentially reaching back two years (three years if the violation was willful).
How does overtime work in states with daily overtime rules?
In California and Colorado, overtime can be triggered by hours worked in a single day, not just by the weekly 40-hour threshold. California requires 1.5x pay after 8 hours in a day and 2x pay after 12 hours. Colorado triggers overtime at 1.5x after 12 hours in a day or 12 consecutive hours.
Does the “No Tax on Overtime” law eliminate all taxes on overtime pay?
No. The 2025 federal provision creates an income tax deduction for the premium portion of overtime pay (up to $12,500 for individual filers), but payroll taxes (Social Security and Medicare) still apply. State income taxes may apply as well, depending on where you live.
How do you calculate overtime for an employee who earns a bonus?
Nondiscretionary bonuses must be included in the regular rate of pay before calculating overtime. Add the bonus to total compensation for the relevant pay period, divide by total hours to get the adjusted regular rate, and apply the 1.5x multiplier for overtime hours.
