Overtime Laws Guide for U.S. Employers (2026)

Federal Overtime Laws: The FLSA

The Fair Labor Standards Act (FLSA) is the main federal law behind overtime rules in the U.S. It sets who qualifies for overtime, how it's calculated and what counts as work time. If you run payroll, this law is your baseline.

Only non-exempt employees are owed overtime under the FLSA. Exempt employees aren't. The tricky part is deciding who's truly exempt, because the rules are more detailed than most owners expect.

Here's a quick breakdown of the two classifications:

To be exempt, an employee usually has to pass all three of these tests:

• Salary basis test: They're paid a set salary that isn't cut based on the quality or amount of their work.
• Salary level test: They earn at least $684 a week ($35,568 a year) under federal law, and some states set a higher minimum.
• Duties test: Their main job duties fit an exempt category, such as executive, administrative or professional work.

For the full rules, see the DOL's Fact Sheet #17A on exemptions.

The Federal Salary Threshold for 2026

The federal salary threshold for most exempt employees is $684 a week ($35,568 a year). For highly compensated employees, it's $107,432 a year in total pay.

A 2024 DOL rule would have raised the threshold to $844 a week and then $1,128 a week. A federal court in Texas struck that rule down in November 2024 (Texas v. Department of Labor), and the DOL formally removed it on May 15, 2026. No automatic increases are scheduled.

Our federal overtime salary threshold guide covers the full history.

How to Calculate Overtime Pay

Overtime pay is usually 1.5 times an employee's regular hourly rate for every hour over 40 in a workweek. That's simple on paper. It gets harder once bonuses, commissions or more than one pay rate come into play.

Here's the basic calculation:

• Step 1: Find the employee's regular hourly rate.
• Step 2: Multiply that rate by 1.5 to get the overtime rate.
• Step 3: Multiply the overtime rate by the number of overtime hours worked.
• Step 4: Add regular earnings and overtime earnings to get total pay.

Example: Hourly Employee

An employee earns $18 an hour and works 45 hours in a workweek.

Example: Including a Bonus

A non-discretionary bonus has to be added into the regular rate before you figure overtime.

Say the same employee ($18 an hour, 45 hours) also earns a $180 production bonus that week:

If you left the bonus out of the overtime math, you'd pay $1,035 and come up $10 short. That's small for one week, but it adds up across a team and a year. The DOL's Fact Sheet #56C explains the bonus rules, and our guide on how to calculate overtime pay rates has more examples.

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Bonuses and commissions can complicate overtime math quickly. Use our free Time Card Calculator to double-check your numbers.

Overtime for Salaried Employees

One of the most common overtime mistakes is assuming salaried employees never get overtime. A salaried employee can still be non-exempt, and owed overtime, if they don't meet every FLSA exemption requirement.

Here's what decides whether a salaried employee is owed overtime:

• Salary level: Employees who earn less than $684 a week ($35,568 a year) are non-exempt under federal law whatever their duties, with a few exceptions such as outside sales. Your state's minimum may be higher.
• Job duties: To be exempt, their main duties must fit an executive, administrative, professional, computer or outside sales role.
• Salary basis: They must get a set salary that isn't cut based on the quality or amount of their work (with limited exceptions).

If even one of these tests isn't met, treat the employee as non-exempt and pay overtime for every hour over 40 in a week.

Example: Salaried Non-Exempt Employee

A salaried employee earns $600 a week for a 40-hour schedule and works 50 hours. Their salary is below $684 a week, so they're non-exempt and owed overtime.

This math assumes the salary covers a 40-hour week. Under federal rules, you divide the salary by the number of hours it's meant to cover, so a salary set for a 35-hour week gives a different regular rate.

If you want to dig deeper, the Department of Labor's overtime pay page explains the details.

The No Tax on Overtime Deduction and W-2 Reporting

A 2025 federal tax law created a deduction often called "no tax on overtime." For tax years 2025 through 2028, employees can deduct up to $12,500 a year of qualified overtime ($25,000 on a joint return) on their federal income tax return. Qualified overtime is only the premium the FLSA requires, usually the extra "half" in time and a half for hours over 40 in a workweek. Overtime that only state law or a union contract requires doesn't count, and you still withhold income tax and pay employment taxes on all overtime.

Your part as an employer is reporting. Starting with 2026 Forms W-2, report each employee's total qualified overtime in box 12 with code TT, so keep weekly records that separate FLSA overtime from other overtime. Our guide to no tax on overtime covers the income phase-out, worked examples and what to put on Form W-2.

Comp Time Instead of Overtime Pay

Comp time is paid time off given in place of overtime pay. Under the FLSA, only state and local government agencies can offer it to non-exempt employees, at 1.5 hours off for each overtime hour worked. Private employers have to pay overtime in cash for every hour over 40 in a workweek.

What Private Employers Can Do Instead of Comp Time

Overtime is figured one workweek at a time, and federal law doesn't let you average hours across weeks. So the only way to trade extra hours for time off is inside the same workweek. If an employee works 10 hours on Monday, you can send them home 2 hours early on Friday of that same week, and the week stays at 40 hours. In a state with daily overtime, such as California, Monday's 2 hours over 8 are still overtime.

Shifting hours like this only works if you see the week's total before it ends. Weekly timesheets show who is heading past 40, and our guide on how to calculate overtime pay rates covers the math when overtime is owed.

Common Overtime Mistakes Employers Make

Most overtime problems start as small misunderstandings that pile up over time. These are the ones that cause the most trouble:

• Misclassifying employees: Treating someone as exempt when they don't actually meet the salary or duties test can lead to large back pay bills.
• Averaging hours across weeks: Overtime is figured one workweek at a time, so you can't average hours across several weeks to avoid paying it.
• Leaving bonuses out of the regular rate: Non-discretionary bonuses and commissions count and must be included when you calculate the overtime rate.
• Missing off-the-clock work: Work you didn't ask for but allowed still counts, including emails, calls and finishing tasks after a shift.
• Offering comp time illegally: Private-sector employers can't replace overtime pay with future time off.
• Ignoring state and city rules: Daily overtime, seventh-day pay and higher salary minimums apply on top of federal law.
• Lumping all overtime together: For 2026 W-2 reporting, you need to separate the FLSA overtime premium from state-only overtime.

Small errors add up fast, especially across several employees. A few missed hours here and there can turn into real liability before anyone notices.

Penalties for Overtime Violations

Getting overtime wrong puts your business at real financial and legal risk. The Department of Labor investigates overtime violations, and employees can also sue on their own.

Here's what an overtime violation can cost your business:

• Back wages: You can owe up to two years of unpaid overtime, or three years if the violation was willful.
• Liquidated damages: You can be ordered to pay an equal amount on top of the back wages, which doubles what you owe, plus the employee's attorney's fees and court costs in a private lawsuit.
• Civil penalties: Repeated or willful overtime violations carry a civil penalty of up to $2,515 per violation in 2026.
• Criminal charges: Willful violations can be prosecuted, with fines of up to $10,000, and a second conviction can lead to jail time.
• Collective actions: One complaint can grow into a lawsuit that covers many current and former employees.
• Reputation damage: Wage lawsuits are public record and can hurt how employees and customers see your business.

The DOL lists current amounts on its civil money penalties page. The 2026 amounts are the same as 2025, because federal agencies didn't apply an inflation increase this year.

Industries With the Most Federal Wage Violations

Staying compliant is harder in industries with long hours, lower wages and high turnover. In fiscal year 2025, the DOL's Wage and Hour Division recovered more than $259 million in back wages for 176,957 workers across all industries.

Top Takeaways From the FY2025 Data:

• Most cases: Food services had the most compliance actions, with 4,088.
• Most back wages: Health care workers were owed the most, at $53.3 million.
• Biggest jump: Back wages in guard services nearly tripled, from $3.7 million in FY2024 to $11.0 million in FY2025.

Here's a snapshot of selected industries from the DOL's low wage, high violation industries data:

These numbers cover every wage violation found in those cases, such as minimum wage problems, so they aren't overtime-only. They show where problems turn up most often.

State and City Overtime Laws

The FLSA sets a national floor: time and a half after 40 hours in a workweek. Many states and some cities go further, with daily overtime, double time, seventh-day pay or rules for specific industries.

Federal law doesn't excuse you from stricter state or local rules. If more than one law applies, follow the one that's better for the employee.

This table covers the most common extra rules, but it isn't a complete list. Check your state labor department's website before you set your overtime policy. For California, see our California overtime laws guide.

State Exempt Salary Thresholds for 2026

Some states set a higher salary floor for exempt employees than the federal $684 a week. Salaried employees in these states must earn at least the state amount, and pass the duties test, to be exempt from overtime.

Maine's figures come from the Maine Department of Labor. Its existing overtime page covers the other exemption rules.

How to Stay Compliant With Overtime Laws

Staying compliant comes down to simple systems that catch problems early. Here's a checklist that works for most small businesses:

• Track every hour worked: Make sure employees record all work time, including remote tasks, emails and after-hours calls.
• Review employee classifications: Check exempt and non-exempt status at least once a year, and any time pay or duties change.
• Watch overtime thresholds: Use time tracking that alerts you as employees get close to 40 hours in a workweek, or to your state's daily limit.
• Train managers and supervisors: Make sure they understand the overtime rules and how scheduling choices affect them.
• Separate overtime types in payroll: Keep the FLSA overtime premium apart from state-only overtime so your W-2 Box 12, code TT amounts are right.
• Keep up with legal changes: Check the Department of Labor and your state labor department each year for new thresholds and rules.

A simple, consistent system lowers your legal risk and keeps pay clear and fair for everyone on your team.

Final Tips for Overtime Compliance

Getting overtime right keeps schedules predictable, paychecks accurate and trust strong between you and your team.

The 10 largest wage and hour settlements totaled $614.55 million in 2024 and $430.58 million in 2025. Most problems start small, so a few steady habits go a long way.

Classify each employee carefully, track every hour worked, follow your state's rules when they're stricter, and keep weekly overtime records that support your 2026 W-2 reporting.

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This guide shares general information only. For advice on your situation, check with your state labor department or an employment attorney.