Overtime Pay Laws: FLSA Rules on Hours, Exemptions, and Calculation

The 40-Hour Threshold and Its Origins

In 1938, Congress passed the Fair Labor Standards Act (FLSA) — the federal law that set the 40-hour workweek as the standard and required premium pay for hours beyond it. The overtime rate was set at one and one-half times the employee's regular rate of pay. Nearly nine decades later, that same 1.5x multiplier remains the federal floor, and the 40-hour threshold has not changed.

The Department of Labor's Wage and Hour Division enforces the FLSA. In fiscal year 2023, the division recovered approximately $274 million in back wages for workers — much of it from overtime violations.

Who the FLSA Covers

The FLSA covers most private-sector employers and all government employers. An employer is subject to FLSA overtime rules if it:

• Has annual gross revenues of at least $500,000, or
• Is engaged in interstate commerce or the production of goods for commerce

Individual employees are also covered if their work involves interstate commerce — a broad standard that courts have interpreted expansively. Most U.S. workers are covered, either through enterprise coverage or individual coverage.

The White-Collar Exemptions

The most significant limit on overtime coverage is the "white-collar" exemptions. Under 29 C.F.R. Part 541, employees who are paid on a salary basis above a set threshold and whose primary duties meet specific tests are exempt from overtime requirements. The three main exemptions are:

Executive Exemption

Applies to employees whose primary duty is managing the enterprise or a customarily recognized department, who customarily direct the work of two or more other employees, and who have authority to hire, fire, or meaningfully recommend such decisions.

Administrative Exemption

Applies to employees whose primary duty is office or non-manual work directly related to management or general business operations, and who exercise discretion and independent judgment with respect to matters of significance.

Professional Exemption

Applies to employees in learned professions (law, medicine, accounting, science, engineering) or creative professions, where the work requires advanced knowledge customarily acquired through specialized intellectual instruction.

Salary Threshold for White-Collar Exemptions

To qualify for any white-collar exemption, employees must be paid on a salary basis at or above a federal minimum. The Department of Labor has updated this threshold several times:

The 2025 threshold represented the largest single increase in the threshold's history. Employees earning below this level cannot be classified as exempt from overtime regardless of their job duties.

Other Notable Exemptions

• Highly compensated employees (HCE): Employees earning $151,164 annually (as of 2025) who perform at least one exempt duty are exempt with a relaxed duties test
• Outside sales exemption: Applies to employees whose primary duty is sales away from the employer's place of business; no salary threshold required
• Computer professional exemption: Applies to systems analysts, programmers, software engineers; may be paid hourly at $27.63/hour or meet the salaried threshold
• Agricultural workers: Many are exempt or subject to different rules
• Seasonal amusement park workers, seamen, and airline employees: Various specialized exemptions apply

Calculating the Regular Rate of Pay

Overtime is calculated at 1.5 times the "regular rate" — not simply the base hourly wage. The regular rate includes most forms of compensation received in the workweek:

• Hourly wages or salary allocated to the workweek
• Non-discretionary bonuses (production bonuses, attendance bonuses)
• Shift differentials and on-call pay
• Commissions earned in the workweek

Excluded from the regular rate are discretionary bonuses, gifts, vacation pay, overtime premiums themselves, and certain benefit plan contributions.

Overtime Calculation Examples

Common Employer Violations

Misclassification is the most prevalent overtime violation. Employers sometimes label workers as exempt "managers" or "administrators" without meeting the duties test. Simply having a managerial title does not create an exemption. Courts look at actual job duties, not job titles.

Other frequent violations include:

• Requiring off-the-clock work (pre-shift setup, post-shift cleanup, answering emails after hours)
• Averaging hours across two weeks to avoid crossing 40 in either
• Misclassifying employees as independent contractors
• Failing to count training time, travel time, or on-call time that qualifies as compensable

Workers who believe they have been denied overtime can file a complaint with the Wage and Hour Division or pursue a private lawsuit within two years (three years for willful violations). Successful claimants may recover back wages plus an equal amount in liquidated damages, along with attorney's fees.

This article is for informational purposes only and does not constitute legal advice.