Overtime laws in the US: How to Manage Them and Stay Profitable
As a business owner or manager, you understand that overtime work can sometimes be unavoidable. Maybe you’re trying to keep up with the evening rush of customers, and you need an employee to stay on a few more hours to help out. Or a team member has called in sick on a busy day, and you need the staff you have clocked on to work extra hours.
In the United States, federal overtime laws apply when nonexempt employees work more than 40 hours in a seven-day workweek. Employees who work more than those hours are subject to overtime regulations.
When people think of overtime laws, they usually think about hourly workers, but overtime rules can also apply to salaried employees — more on that in a moment.
The federal government regulates overtime in the U.S., but certain states have their own separate overtime laws. Understanding your obligations as an employer is imperative to avoid overworking your team, staying on budget, and preventing legal penalties.
This article discusses the most common overtime questions, how it’s calculated, new overtime laws to be aware of, and how to manage the laws best while staying profitable. Keep reading to learn more.
Table of Contents
Who does overtime apply to, and who is exempt from overtime pay in the U.S.?
Federal overtime laws and how overtime is calculated
State and local overtime laws and how overtime is calculated
New overtime rule affecting salaried workers
How businesses can simplify compliance
How to schedule employees cost-efficiently with demand forecasting
Who does overtime apply to, and who is exempt from overtime pay in the U.S.?
On a federal level, most nonexempt employees are covered by the Fair Labor Standards Act (FLSA) which states that they must receive overtime pay if they work more than 40 hours in a seven-day workweek.
The FLSA does not limit the number of hours employees aged 16 and older may work within a workweek. FLSA overtime rules also generally don’t require premium pay for work on weekends, holidays, or regular days of rest unless overtime is worked on those days.
When it comes to state laws, there can be laws that apply to your business at a statewide or city level. In some cases, both the federal and state laws can apply to your employees. See below for more details about the two.
There are many different exemptions from federal overtime laws, but the most common are the “white collar” executive, administrative, and professional exemptions. To qualify for these exemptions, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week.
Federal overtime laws and how overtime is calculated
The federal overtime laws are contained in the Fair Labor Standards Act (FLSA). Under the FLSA, non-exempt employees must receive overtime pay if they work over 40 hours in a workweek. A workweek is a fixed and recurring period of 168 hours or seven consecutive 24-hour shifts that do not correspond to a calendar week.
The overtime rate must be no less than time and one-half of their regular rate of pay. Overtime pay is typically paid on the regular payday for a pay period where wages were earned.
There is no limit in the FLSA on the number of hours employees aged 16 and older work in any workweek. Unless overtime is worked on the following days, the Act doesn’t require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest.
Be aware that state and local laws can also affect an employee’s overtime pay. Certain non-exempt employees are entitled to compensation for training, traveling, and repair work. If employees are covered under multiple laws, they are entitled to the one with the higher benefit.
State overtime laws and how overtime is calculated
In addition to the Fair Labor Standards Act, some states have their own overtime rules. Many states have different overtime pay requirements that are more beneficial to employees. Those laws can apply to certain employers or employees, just as federal laws do.
If you employ remote workers, the state overtime laws will generally apply where the employee is based. For example, if you run a business in Utah, but your employee works remotely from California, then the Golden State’s labor laws will generally apply to them.
If city, state, and federal laws are implicated, and they have conflicting requirements, the law that is most beneficial to the employee applies. With respect to overtime laws, that means the highest rate of overtime must be used. Local and state laws are typically more beneficial to employees than federal laws.
States that require daily overtime pay or double-time overtime pay:
| State | Daily overtime at the rate of 1.5 times the employee’s regular rate of pay | Daily or weekly overtime at the rate of double the employee’s regular rate of pay |
|---|---|---|
| Alaska | over 8 hours in a day | |
| California | over 8 hours in a day; the first eight hours worked on the seventh consecutive day of work in a workweek | over 12 hours in a day; all hours worked in excess of 8 on the seventh consecutive day of work in a workweek |
| Colorado | over 12 hours in a day; over 12 consecutive hours | |
| Nevada | over 8 hours in a rolling workday |
New overtime rule affecting salaried exempt employees
A new rule from the U.S. Department of Labor (DOL) will substantially increase the minimum salary an employer must pay certain employees to classify them as exempt from overtime pay under the federal Fair Labor Standards Act.
This rule took effect on July 1, 2024, and will be revised again on January 1, 2025. By then, employers must increase salaries (up to 64% in some cases) to meet the new threshold or start paying affected employees overtime when they work more than 40 hours per week.
If audited, the new rule could raise new compliance challenges, such as recording the hours of salaried employees, calculating the correct overtime rates, and keeping compliance records. To learn more about the most common questions we’re hearing from DOL’s new overtime rule, see here for all the need-to-know details.
How businesses can simplify compliance
Overtime laws are already complex. With the introduction of new overtime pay laws, compliance management will be even more challenging. With so much to keep track of, it’s worthwhile to look into overtime compliance software to help simplify and streamline compliance with federal, state, and local laws.
It can handle tasks like recording and verifying employee working hours and applying pay rates that you set up. Its smart features can automate complex pay calculators, record accurate hours, and streamline complex pay calculations with every timesheet. It can also export payroll with a click to give your team hassle-free paydays.
How to schedule employees cost-efficiently with demand forecasting
On top of compliance challenges, businesses are feeling more pressure than before to cut costs due to economic factors like high inflation. To help you keep labor costs under budget and avoid overspending, demand forecasting and scheduling software can make an immense difference.
This technology can help you plan optimal staff coverage that matches customer demand, avoiding costly overstaffing. It can also provide real-time insights on how much you’re spending compared to your budget and sales.
When shopping around for demand forecasting and scheduling solutions, look for software that includes smart alerts that let you know if an employee is heading into overtime. This can be the difference between blown out costs and staying within budget.
Want to see how it all works with Deputy? Book a free demo in just a few easy steps.
Disclaimer: The information provided in this publication is for general informational purposes only. Deputy makes no representations or warranties of any kind, express or implied, with respect to the software or the information contained in this publication. While, Deputy’s software is designed to simplify shift work by assisting with hiring, onboarding, scheduling, time and attendance tracking, payroll integration, and wage and hour compliance, it is not a substitute for payroll or legal advice, nor is it intended to relieve you of your obligation to comply with the legal requirements applicable to your business. It is ultimately your responsibility to ensure that your use of Deputy complies with all applicable laws and regulations. Please review our Product Specific Terms for more information about your compliance responsibilities.