Overtime Rules for Exempt and Non-Exempt Employees

The Federal Overtime Rule: Start With the FLSA

The Fair Labor Standards Act, commonly called the FLSA, establishes federal standards for minimum wage, overtime pay, recordkeeping, and youth employment. Covered, non-exempt employees generally must receive at least one and one-half times their regular rate of pay for hours worked beyond 40 in a single workweek.

A workweek is a fixed, regularly recurring period of 168 hoursseven consecutive 24-hour periods. It does not have to begin on Monday. An employer may establish a workweek beginning on Wednesday at 2:00 a.m., although doing so may cause payroll staff to question every decision that led them there.

Federal law generally does not require daily overtime merely because an employee works more than eight hours in one day. A non-exempt employee could work 10 hours on Monday, 10 on Tuesday, and 20 spread across the remaining days without earning federal overtime, provided the total does not exceed 40 hours. State law may be more generous.

Employers may not average hours across multiple workweeks. An employee who works 50 hours during one week and 30 during the next has worked 10 federal overtime hours. The two-week average of 40 does not erase them.

Federal overtime framework:

What Is a Non-Exempt Employee?

A non-exempt employee is protected by the FLSA’s overtime provisions unless another specific exclusion applies. Non-exempt workers may be paid hourly, by salary, by commission, by piece rate, or through a combination of compensation methods.

That point is worth repeating in a slightly different outfit: a salaried employee can still be non-exempt. Paying someone a fixed amount each week does not automatically eliminate overtime eligibility.

For non-exempt employees, employers must track compensable working time and calculate overtime using the employee’s regular rate of pay. The regular rate may be higher than the employee’s stated hourly wage because certain bonuses, commissions, shift differentials, and incentive payments must be included.

Common examples of non-exempt positions

Many hourly retail workers, receptionists, warehouse employees, customer service representatives, construction workers, production employees, technicians, restaurant employees, and administrative support workers are non-exempt. However, occupation alone does not settle the question. Actual duties, pay practices, and applicable exemptions must be reviewed.

What Is an Exempt Employee?

An exempt employee is excluded from specific FLSA minimum wage or overtime protections because the employee satisfies the requirements of a recognized exemption. The best-known exemptions cover certain executive, administrative, professional, outside sales, and computer employees.

Exempt employees generally receive the same salary regardless of whether they work 35, 40, or 50 hours in a week. They normally do not receive additional federal overtime pay for working beyond 40 hours.

Exemption status is not determined by job title, employment agreement, employee preference, or payroll software setting. An employer cannot simply declare, “Congratulations, you are now exempt,” and expect the law to nod politely.

The Three Main Tests for White-Collar Exemptions

Most executive, administrative, and professional exemptions require an employee to satisfy three separate tests: the salary-basis test, the salary-level test, and the duties test. Failing any required part usually means the employee is non-exempt.

1. The salary-basis test

An employee is paid on a salary basis when the employee regularly receives a predetermined amount of compensation that is not reduced because of variations in the quality or quantity of work performed.

Limited deductions may be allowed in circumstances described by federal regulations, such as certain full-day absences for personal reasons, qualifying disciplinary suspensions, or unpaid leave under the Family and Medical Leave Act. Routine deductions for partial-day absences or slow business periods may jeopardize the exemption.

2. The salary-level test

As of July 2026, the operative federal salary threshold for most executive, administrative, and professional exemptions is $684 per week, equivalent to $35,568 per year for a full-year employee. A 2024 rule would have increased the threshold, but that rule was vacated by a federal court. In May 2026, the Department of Labor formally restored the regulatory text based on the 2019 rule.

Earning more than the threshold does not automatically make an employee exempt. It merely clears one hurdle. The employee must still satisfy the applicable salary-basis and duties requirements.

3. The duties test

The employee’s primary duty must consist of qualifying exempt work. Employers should examine what the person actually does, how much authority the person exercises, and the importance of those dutiesnot merely what appears in a job description written three reorganizations ago.

Current salary threshold and classification rules:

Major Exempt Employee Categories

Highly compensated employees

A streamlined duties test may apply to certain highly compensated employees who perform office or nonmanual work. Under the operative federal rules, the employee must receive total annual compensation of at least $107,432, including at least $684 per week on a salary or fee basis, and customarily perform at least one exempt executive, administrative, or professional duty.

High earnings alone are not magic. In Helix Energy Solutions Group, Inc. v. Hewitt, the U.S. Supreme Court held that a highly paid employee compensated on a daily-rate basis did not satisfy the salary-basis requirement under the regulation at issue. The case illustrates why compensation structure matters, even when an employee earns six figures.

Exemption duties and compensation sources:

How Overtime Pay Is Calculated

The basic formula sounds simple:

Overtime rate = regular rate of pay × 1.5

Suppose Jordan is a non-exempt employee earning $20 per hour. Jordan works 45 hours during one workweek:

• 40 regular hours × $20 = $800
• 5 overtime hours × $30 = $150
• Total gross pay = $950

The calculation becomes more complicated when additional compensation is involved. The regular rate generally includes most remuneration for employment, subject to specific statutory exclusions.

Nondiscretionary bonuses

A promised attendance bonus, production bonus, safety bonus, or incentive tied to measurable results is commonly nondiscretionary. It generally must be included in the regular-rate calculation and may increase overtime owed for the period covered by the bonus.

A truly discretionary bonus may be excluded when both the decision to award it and the amount remain at the employer’s sole discretion until near the end of the relevant period. Calling a payment “discretionary” in a spreadsheet does not make it so if employees were promised the money in advance.

Commissions and shift differentials

Many commissions and shift premiums also enter the regular rate. When an employee works at multiple hourly rates during the same week, a weighted-average calculation may be necessary unless another lawful method applies.

Paid leave usually is not an hour worked

Under the federal weekly overtime calculation, paid vacation, holidays, sick leave, and other paid time not actually worked generally do not count toward the 40-hour threshold. An employer’s policy, contract, collective bargaining agreement, or state law may provide something more generous.

Regular-rate and bonus guidance:

Which Hours Count as Work?

Overtime problems frequently begin before payroll performs any math. The employer first must identify all compensable time.

Hours worked may include time spent:

• Performing required tasks before or after a scheduled shift
• Answering work emails or messages outside normal hours
• Completing required paperwork from home
• Participating in mandatory meetings or training
• Traveling between job sites during the workday
• Waiting while engaged to wait
• Working through an unpaid meal period
• Starting computers, loading required programs, or securing equipment when those activities are integral to the job

Ordinary commuting from home to the regular workplace generally is not compensable under federal law. Travel during normal working hours and travel between work locations may be.

Remote employees are subject to the same basic principles. Ten minutes spent responding to a manager’s late-night request does not become recreational screen time merely because it happened on a couch.

Unauthorized overtime must still be paid

An employer may require employees to obtain approval before working overtime. It may discipline workers who disregard that policy. However, if the employer knows or has reason to know that compensable work was performed, it generally must pay for the time. The approval rule controls conduct; it does not create free labor.

Hours-worked and recordkeeping guidance:

Common Overtime Myths That Cause Expensive Mistakes

“Everyone on salary is exempt”

False. A salaried worker may be non-exempt and entitled to overtime. Compensation method and exemption status are related, but they are not identical.

“Managers never receive overtime”

A management title is insufficient. An assistant manager who spends nearly all working time running a cash register, stocking shelves, and following detailed instructions may not satisfy the executive duties test.

“Employees can waive overtime”

Covered employees generally cannot privately waive their FLSA overtime rights. A signed agreement accepting straight-time pay for 50 hours does not necessarily make the arrangement lawful.

“Private companies can substitute comp time”

Private-sector employers generally cannot replace legally required overtime pay with future time off. Special compensatory-time rules may apply to eligible state and local government employees.

“Small amounts of off-the-clock work do not matter”

Repeated small tasks can become substantial. Five unpaid minutes each day may look harmless until multiplied by hundreds of employees and several years.

“Independent contractors are automatically exempt”

Independent-contractor status is a separate legal question. A worker does not become an independent contractor merely by receiving Form 1099, signing an agreement, or supplying a preferred job title. Misclassified workers may still have wage and overtime rights.

State Overtime Laws May Be More Protective

The FLSA is only the federal baseline. Employers must also review the laws of every state and locality where employees perform work. When federal and state standards both apply, employees generally receive the protection of the more favorable rule.

California

California generally requires overtime for many non-exempt employees who work more than eight hours in a workday, more than 40 hours in a workweek, or qualifying hours on a seventh consecutive workday. Double-time requirements may apply after 12 hours in a workday and in other specified circumstances.

Washington

Washington uses a state salary threshold tied to its minimum wage. In 2026, most covered executive, administrative, and professional employees must earn at least $1,541.70 per week, or $80,168.40 annually, in addition to satisfying the state duties test. That is substantially higher than the operative federal threshold.

Colorado

Colorado generally requires overtime for covered employees after more than 40 hours in a workweek, more than 12 hours in a workday, or more than 12 consecutive hours, using the calculation that provides the greater payment.

New York

New York maintains its own wage orders, industry rules, exemption standards, and regional pay requirements. As one specialized example, the state’s weekly overtime threshold for many farm laborers decreased to 52 hours on January 1, 2026.

These examples are not a complete list. Municipal ordinances, industry-specific rules, union agreements, public-sector laws, prevailing-wage requirements, and special occupation rules may also affect overtime obligations.

State-law examples:

Practical Overtime Compliance Checklist

1. Review actual duties. Interview employees and supervisors instead of relying exclusively on job descriptions.
2. Confirm every required test. Salary basis, salary level, and exempt duties must each be analyzed where applicable.
3. Check state and local law. Use the work location, not merely the headquarters address.
4. Track all time for non-exempt workers. Include remote work, required preparation, training, travel between sites, and interrupted meal periods.
5. Audit the regular rate. Examine bonuses, commissions, differentials, service charges, and other payments.
6. Train managers. Supervisors should never encourage employees to clock out and continue working.
7. Investigate unusual patterns. Identical time entries, constant 40-hour weeks, or frequent after-hours messages may indicate inaccurate records.
8. Reassess classifications after changes. Promotions, reorganizations, remote-work arrangements, and new responsibilities may alter the analysis.
9. Correct problems carefully. Reclassification can involve back-pay calculations, payroll adjustments, employee communication, and legal risk.

Workplace Experiences and Lessons Behind Overtime Disputes

Overtime disputes rarely begin with a dramatic announcement. More often, they grow from everyday habits that seem minor until someone examines several years of records.

Experience 1: The impressive title with ordinary duties

A company promotes a reliable customer service employee to “operations manager,” adds a modest weekly salary, and stops tracking hours. The employee still answers phones, enters orders, handles routine complaints, and follows procedures created by senior management. The new title sounds executive, but the job may not involve managing a recognized department, directing two employees, or exercising meaningful personnel authority.

The practical lesson is simple: promotions should trigger a classification review. A nicer email signature cannot perform exempt duties on the employee’s behalf.

Experience 2: The after-hours message trail

A remote employee records exactly eight hours every day, yet the team’s chat history shows early-morning updates, evening questions, and weekend file uploads. Each interaction lasts only a few minutes, so neither the employee nor the manager treats it as significant. Over many months, however, the unpaid time adds up and may push some workweeks beyond 40 hours.

Employers should establish practical reporting procedures and train managers not to create an unofficial second shift through smartphones. Employees should be encouraged to report all working time, even when the task takes less time than reheating coffee.

Experience 3: The bonus that payroll forgot

A warehouse pays non-exempt workers a quarterly production bonus based on output. Payroll calculates overtime using only the base hourly rate because the bonus is processed separately. Since the bonus was promised and tied to performance, it may need to be allocated across the relevant workweeks, increasing the regular rate and producing additional overtime liability.

The lesson is that payroll, human resources, and compensation teams must communicate. A payment can arrive in a separate file without living in a separate legal universe.

Experience 4: The policy that prohibited overtime but did not prevent it

A supervisor tells employees that overtime is forbidden without written approval. Deadlines remain unchanged, staffing stays thin, and employees continue working after clocking out. Management sees unfinished reports arriving at midnight but assumes the approval policy solves the problem.

It does not. Employers should manage workloads, monitor working patterns, and enforce scheduling rules prospectively. They may address policy violations through appropriate discipline, but withholding earned wages is generally not the lawful solution.

Experience 5: The multistate expansion surprise

A growing company applies its home-state classification system to employees nationwide. Its federal analysis appears reasonable, but employees in California, Colorado, Washington, and New York may be protected by different salary thresholds, duties tests, daily overtime rules, or wage orders.

The operational lesson is to build a location-based compliance process before hiring in a new state. Payroll settings, offer letters, timekeeping systems, and manager training should reflect the employee’s work location. Fixing the process before the first paycheck is usually far less painful than reconstructing two years of working time from calendars, messages, and login records.

Across these experiences, the recurring theme is that overtime compliance depends on workplace reality. Accurate titles, written policies, and sophisticated payroll systems help, but they cannot replace an honest review of what employees do, when they do it, how they are paid, and which laws apply.

Conclusion

Overtime rules for exempt and non-exempt employees cannot be reduced to the familiar idea that hourly workers receive overtime while salaried employees do not. Non-exempt employees may receive salaries, and highly paid employees may remain overtime-eligible when their compensation structure or duties fail the legal tests.

Employers should classify positions using actual responsibilities, maintain complete time records, include appropriate compensation in the regular rate, and review state requirements. Employees should understand that titles and payment methods do not, by themselves, determine overtime rights.

The safest approach is regular review. Jobs evolve, salaries change, teams expand, employees move across state lines, and wage regulations are updated. Overtime compliance should evolve with them rather than remaining frozen in a job description written when fax machines were considered cutting-edge technology.