FLSA Overtime Rules 2026: The Small Business Guide

The Verdict

Misclassifying employees or failing to pay overtime correctly is the fastest way to get sued. The Fair Labor Standards Act (FLSA) requires time-and-a-half pay for all hours over 40 in a workweek for non-exempt employees. Digital time tracking is your best defense against compliance audits.

The Basics: Who Gets Overtime?

Under the FLSA, employees are generally entitled to overtime pay unless they meet specific exemption tests (Executive, Administrative, Professional, etc.). 'Non-exempt' employees must receive 1.5x their regular rate for hours worked over 40 in a workweek.

The Salary Threshold

"As of 2026, the salary threshold for exemption has increased. Employees earning below this amount are typically non-exempt and MUST be paid overtime, regardless of their job title."

Exempt vs. Non-Exempt: Quick Check

FactorExemptNon-Exempt
Pay StructureSalary (Fixed)Hourly (Usually)
Overtime EligibilityNot EligibleEligible (1.5x)
Job DutiesManagerial/specializedGeneral labor/clerical
Time TrackingOptional (but recommended)Mandatory

How to Calculate Overtime Correctly

Avoid these common math errors when running payroll.

1

Determine the Workweek

Establish a fixed 7-day period (e.g., Sun-Sat). You cannot average hours over two weeks to avoid overtime (unless you have a specific 8/80 rule implementation for healthcare).

2

Calculate Regular Rate

Include bonuses and commissions in the 'regular rate' before multiplying by 1.5. Excluding nondiscretionary bonuses is a common violation.

3

Track the Hours

Use a digital clock to capture exact minutes. Rounding is legal but dangerous if it always favors the employer.

State Law Override

Federal law is the 'floor', not the ceiling. States like California have stricter daily overtime rules (over 8 hours in a day = overtime). Always follow the law that provides the greater benefit to the employee.

Overtime Pay Calculator

Calculate gross pay including time-and-a-half.

Frequently Asked Questions

Can I give 'comp time' instead of overtime pay?

Generally, no. Private employers cannot offer compensatory time off in lieu of cash overtime wages. This practice is mostly limited to government employees.

Do salaried employees get overtime?

They might! Being 'salaried' does not automatically make someone exempt. If they earn below the threshold or don't meet the duties test, you must pay them overtime on top of their salary.

Is unauthorized overtime payable?

Yes. If an employee works overtime without permission, you must pay them. You can discipline them for breaking policy, but you cannot withhold pay.

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