Overtime is one of the most common sources of payroll errors. Here's the definitive guide to calculating OT correctly under federal and state law.
By ExpertPaystubs Editorial Team. Published 2026-02-20
Overtime errors are among the most common payroll mistakes — and they're expensive. The Department of Labor recovered $274 million in back wages for workers in 2023 alone, much of it from overtime violations.
Here's how to calculate overtime correctly every time.
Federal Overtime Rules (FLSA)
The Fair Labor Standards Act (FLSA) establishes the baseline:
- Overtime threshold: 40 hours per workweek
- Overtime rate: 1.5× regular hourly rate ("time and a half")
- Who qualifies: Non-exempt employees (most hourly workers)
- Who's exempt: Salaried employees meeting specific duties tests AND earning $58,656+/year (2026 threshold)
The Basic Formula
Regular Pay = Hourly Rate × 40 hours
Overtime Pay = Hourly Rate × 1.5 × OT Hours
Total Gross = Regular Pay + Overtime Pay
Example: Employee earning $20/hr works 48 hours
- Regular: $20 × 40 = $800
- Overtime: $20 × 1.5 × 8 = $240
- Total Gross: $1,040
State Overtime Laws That Exceed Federal
Several states have stricter overtime requirements:
California (Most Complex)
- Daily overtime: 1.5× after 8 hours in a day
- Double time: 2× after 12 hours in a day
- 7th consecutive day: 1.5× for first 8 hours, 2× after 8 hours
- Alternative workweek: 4×10 schedules possible with employee agreement
Other Notable States
| State | Additional OT Rules |
|---|---|
| Alaska | Daily OT after 8 hours |
| Colorado | Daily OT after 12 hours |
| Nevada | Daily OT after 8 hours (if rate < 1.5× minimum wage) |
| Oregon | Manufacturing: daily OT after 10 hours |
| Washington | Farmworkers: 40-hour weekly threshold |
Calculating OT for Different Pay Structures
Hourly Employees (Straightforward)
Just multiply the regular rate by 1.5 for hours over 40.
Salaried Non-Exempt Employees
Step 1: Convert salary to hourly rate
Hourly Rate = Annual Salary ÷ 52 ÷ 40
Step 2: Apply 1.5× for overtime hours
Example: $45,000/year salary, worked 45 hours
- Hourly rate: $45,000 ÷ 52 ÷ 40 = $21.63/hr
- Regular: $21.63 × 40 = $865.38
- OT: $21.63 × 1.5 × 5 = $162.23
- Total: $1,027.61
Employees with Multiple Rates
If an employee works at different rates during the week, use the weighted average method:
Weighted Rate = Total Straight-Time Earnings ÷ Total Hours Worked
OT Premium = Weighted Rate × 0.5 × OT Hours
Employees with Bonuses or Commission
Non-discretionary bonuses and commissions must be included in the regular rate for OT calculation. This often requires retroactive adjustments.
Common Overtime Mistakes
- Using "comp time" instead of paying OT — Only legal for government employers
- Averaging hours across two weeks — FLSA requires weekly calculation (except 14-day period for hospitals)
- Misclassifying employees as exempt — "Job title" doesn't determine exemption; duties do
- Not including all hours worked — Training, travel between job sites, waiting time, and on-call time may count
- Rounding errors — IRS allows rounding to nearest quarter-hour, but it must be neutral over time
How Pay Stubs Should Display Overtime
A professional pay stub should clearly separate:
| Earnings Type | Rate | Hours | Total |
|---|---|---|---|
| Regular | $25.00 | 40.00 | $1,000.00 |
| Overtime (1.5×) | $37.50 | 8.00 | $300.00 |
| Gross Pay | 48.00 | $1,300.00 |
This transparency protects both employers and employees.
Generate Accurate Overtime Pay Stubs
ExpertPaystubs automatically handles overtime calculations, including daily OT for California employees. Enter regular and overtime hours, and we calculate everything correctly.