Overtime Policy
A written policy that defines how an organization handles work beyond standard hours, including eligibility rules, approval requirements, overtime pay calculations, record-keeping obligations, and the legal framework under the Fair Labor Standards Act and state wage laws.
What Is an Overtime Policy?
Key Takeaways
- ✓An overtime policy sets the rules for when employees can work beyond standard hours, how overtime must be approved, and how it's compensated in accordance with federal and state wage laws.
- ✓The FLSA requires employers to pay non-exempt employees at least 1.5 times their regular rate for all hours worked over 40 in a workweek. This isn't optional, and no policy can waive it.
- ✓A policy without an approval process leads to uncontrolled overtime costs. A policy with an approval process but poor enforcement leads to employees working unauthorized overtime that the company still has to pay for.
- ✓State laws often add requirements on top of the FLSA. California requires daily overtime (over 8 hours in a day), and several states have different thresholds for specific industries.
- ✓The most common overtime violation isn't refusing to pay. It's misclassifying employees as exempt when they don't meet the FLSA's duties and salary tests, which eliminates their overtime eligibility on paper but not under the law.
An overtime policy is the internal rulebook for how your organization manages work that goes beyond the standard schedule. It covers who's eligible for overtime pay, how extra hours are approved, how overtime is calculated, and what happens when someone works overtime without authorization. The legal foundation is the FLSA, which requires non-exempt employees to receive overtime pay at 1.5 times their regular rate for hours worked over 40 in a single workweek. That's federal law. You can't opt out of it, negotiate around it, or replace it with comp time (for private sector employers). Your policy can set higher standards than the FLSA, but it can't set lower ones. The policy exists for two reasons. First, it ensures legal compliance by documenting how the company meets its overtime obligations. Second, it controls costs by requiring advance approval for overtime work. Without a policy, overtime spending is unpredictable, managers approve hours inconsistently, and the company faces liability when employees work extra hours that nobody authorized but everybody knew about.
FLSA Overtime Requirements
The Fair Labor Standards Act is the baseline. Every overtime policy must comply with these federal requirements, and most need to account for stricter state rules on top.
| FLSA Requirement | Details | What Employers Get Wrong |
|---|---|---|
| Overtime threshold | 40 hours per workweek | Using a bi-weekly (80-hour) threshold instead of weekly; FLSA requires weekly calculation |
| Pay rate | 1.5x the regular rate of pay | Calculating based on base hourly rate only, excluding shift differentials, bonuses, and commissions that must be included |
| Workweek definition | Any fixed, recurring 168-hour (7-day) period | Changing the workweek definition to avoid overtime; the workweek must be consistent |
| Non-exempt classification | Employees who don't meet executive, administrative, professional, computer, or outside sales exemption tests | Classifying by job title instead of actual duties; the exemption depends on what the employee does, not what their title says |
| Salary threshold | $35,568/year ($684/week) minimum for exempt classification | Assuming anyone paid a salary is exempt; salary alone doesn't determine exemption status |
| Recordkeeping | Employers must track hours worked for all non-exempt employees | Not tracking hours for salaried non-exempt employees or relying on employees to self-report without verification |
State Overtime Laws That Exceed the FLSA
Several states impose overtime requirements that go beyond the federal standard. Your policy needs to comply with the most favorable law for employees in each state where you operate.
Daily overtime states
California requires overtime pay after 8 hours in a single workday and double-time after 12 hours. Alaska requires overtime after 8 hours per day. Nevada requires overtime after 8 hours per day for employees earning less than 1.5 times the minimum wage. Colorado requires overtime after 12 hours in a day or 12 consecutive hours regardless of workday. These daily overtime rules apply regardless of total weekly hours. An employee in California who works four 10-hour days (40 hours total) still earns 8 hours of overtime pay under state law, even though they wouldn't under the FLSA.
Seventh consecutive day rules
California requires premium pay for all hours worked on the seventh consecutive day of the workweek: 1.5x for the first 8 hours and 2x for hours beyond 8. This applies even if the employee hasn't exceeded 40 hours that week. Other states have similar provisions for specific industries. If your policy only addresses weekly overtime, you're missing these day-specific obligations.
Higher salary thresholds
Some states set their own salary thresholds for overtime exemption that exceed the federal level. New York's threshold varies by region (higher in NYC). Washington state's threshold is tied to the state minimum wage and exceeds the federal threshold significantly. California requires exempt employees to earn at least twice the state minimum wage. Companies with employees in multiple states need to track and apply the correct threshold for each location.
Overtime Approval Process
The approval process is where policy meets reality. A well-designed process controls costs without creating a system so cumbersome that employees just work unapproved overtime anyway.
Pre-approval requirements
The policy should require employees to get written approval from their manager before working overtime. The approval should specify the number of extra hours authorized and the business reason. This creates a paper trail for both budgeting and compliance purposes. In practice, pre-approval works well for planned overtime (weekend shifts, end-of-quarter pushes) but poorly for urgent situations. The policy needs to account for emergency overtime that can't wait for approval.
Unauthorized overtime
Here's the part that trips up most employers: you have to pay for unauthorized overtime. Under the FLSA, if an employer knows or should have known that an employee worked overtime, the hours must be compensated regardless of whether they were approved. You can discipline an employee for working unauthorized overtime. You can write them up, issue a final warning, even terminate them. But you can't withhold their pay. The policy should clearly state that unauthorized overtime will be paid but may result in disciplinary action.
Calculating the Regular Rate of Pay
Overtime is 1.5 times the "regular rate," but the regular rate isn't always the base hourly wage. Several pay components must be included in the calculation.
| Pay Component | Include in Regular Rate? | Explanation |
|---|---|---|
| Base hourly wage | Yes | The starting point for every overtime calculation |
| Shift differentials | Yes | Premium pay for night, weekend, or holiday shifts is included |
| Non-discretionary bonuses | Yes | Bonuses tied to productivity, attendance, or performance metrics must be included |
| Discretionary bonuses | No | Bonuses where the amount and timing are entirely at management's discretion are excluded |
| Commissions | Yes | Commissions earned during the workweek are included in the regular rate |
| Piece rate earnings | Yes | Pay based on units produced is included |
| Hazard pay | Yes | Additional pay for dangerous work conditions is included |
| On-call pay | Depends | Included if the employee's freedom is substantially restricted; excluded for unrestricted on-call |
| Holiday premium pay | No | Extra pay for working on a holiday at a premium rate can be excluded under certain conditions |
| Expense reimbursements | No | Genuine reimbursement of business expenses isn't wages |
Common Overtime Violations
These are the mistakes that generate DOL investigations, class action lawsuits, and back wage orders. Most are preventable with proper policy design and manager training.
- Misclassifying employees as exempt to avoid overtime. This is the single most common FLSA violation. Job titles don't determine exemption. Actual duties and salary level do.
- Failing to include non-discretionary bonuses and shift differentials when calculating the regular rate for overtime purposes.
- Using a two-week pay period as the overtime threshold (80 hours per two weeks) instead of the FLSA's requirement of 40 hours per single workweek.
- Allowing or expecting "off-the-clock" work, such as requiring employees to set up before clocking in, answer emails after clocking out, or complete training on their own time.
- Providing comp time (time off instead of overtime pay) to private sector employees. This is only permitted for public sector employers under the FLSA.
- Rounding time clock entries in a way that systematically shortchanges employees. Rounding is permitted only if it's neutral over time, not if it consistently rounds down.
- Not tracking hours for remote employees, assuming that working from home means the employer doesn't need to monitor hours worked.
Overtime Compliance Statistics [2026]
These numbers show why overtime compliance deserves attention from every employer with non-exempt workers.
Overtime Policy Best Practices
These practices protect the company from DOL enforcement actions while keeping overtime costs manageable.
- Audit exempt classifications annually. When roles evolve, duties change, and the original exemption basis may no longer apply.
- Train managers on what counts as "hours worked" under the FLSA, including pre-shift setup, post-shift cleanup, training time, and travel between work sites during the day.
- Implement a time-tracking system for all non-exempt employees, including remote workers and salaried non-exempt staff. If you don't track it, you can't prove it.
- Require pre-approval for overtime and make the form simple: date, estimated hours, business reason, manager signature. Complex approval chains discourage compliance.
- Pay unauthorized overtime promptly and address the behavior separately through the disciplinary process. Never withhold pay as a consequence for working unapproved hours.
- Review your regular rate calculation with payroll at least annually to ensure all required pay components are included.
- Monitor overtime trends by department to catch chronic overtime that may indicate understaffing rather than occasional demand spikes.
Frequently Asked Questions
Can an employer require mandatory overtime?
Do salaried employees get overtime?
Can employees waive their right to overtime pay?
How is overtime calculated for employees with two different pay rates?
What's the statute of limitations for overtime claims?
Does travel time count as hours worked for overtime purposes?
Written by Adithyan RK