How to Calculate Overtime for Salaried Employees

One of the most common payroll assumptions in small business is that paying someone a salary means you don’t have to track their hours or pay overtime. It’s an understandable assumption — but it’s frequently wrong, and acting on it can lead to unpaid wage claims.

Under the federal Fair Labor Standards Act (FLSA), whether an employee is exempt from overtime depends not just on how they’re paid, but on how much they earn and what they actually do. Many salaried employees don’t meet the legal standard for exemption — which means they’re entitled to overtime pay just like any hourly worker.

This guide explains when a salaried employee is entitled to overtime under federal law, how to calculate it correctly when they are, and what to watch for if your business operates in a state with its own overtime rules.

When Salaried Employees Are Entitled to Overtime

The FLSA creates two categories of employees: exempt and non-exempt. Exempt employees are not entitled to overtime. Non-exempt employees — regardless of whether they’re paid by salary or by the hour — must be paid at least 1.5 times their regular rate for every hour worked beyond 40 in a workweek.

For a salaried employee to be exempt from overtime under the FLSA, they generally must meet all three of the following conditions:

If an employee fails any one of these three tests — including the duties test — they are generally non-exempt and entitled to overtime. A title like “Manager” or “Coordinator” does not create exemption; only actual job duties and pay level do.

The duties tests in plain language

The three most common white-collar exemptions under the FLSA are:

• Executive: Primary duty is managing the business (or a recognized subdivision), directing the work of at least two full-time equivalent employees, and having authority (or meaningful input) over hiring or firing decisions.
• Administrative: Primary duty is office or non-manual work directly related to the management or general business operations, and the role involves exercising discretion and independent judgment on matters of significance.
• Professional: Primary duty requires knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (learned professional), or talent in a recognized field of artistic or creative endeavor (creative professional).

Many roles that sound exempt — assistant managers, office administrators, bookkeepers, customer service supervisors — may not actually meet the duties tests when carefully evaluated. When in doubt, the correct starting assumption is non-exempt.

How to Calculate the Regular Rate for Salaried Employees

For a non-exempt salaried employee, overtime pay is calculated based on a regular rate of pay — an hourly equivalent derived from the weekly salary. The most straightforward and broadly applicable method is the standard 40-hour basis: treat the salary as covering 40 hours, find the regular hourly rate, then pay full 1.5× for every overtime hour.

Worked example: $800/week salary, 50 hours worked

Alternative: the fluctuating workweek method

There is a second FLSA-recognized method called the fluctuating workweek (sometimes called the half-time method), used in situations where the employee’s hours genuinely vary from week to week and both parties understand the salary covers all hours worked. Under this approach:

State Rules That Can Change the Calculation

Federal law sets a floor — states can and often do exceed it. Before applying any overtime calculation to salaried employees, confirm whether your state has its own rules that modify or override the federal approach.

California

California has its own overtime law that is significantly stricter than the federal FLSA in several respects: a higher salary threshold for exemption, a narrower duties test, daily overtime (over 8 hours in a day), and double time (over 12 hours in a day or on the 7th consecutive day of the workweek). California also does not recognize the fluctuating workweek method. See the California overtime calculator →

New York

New York has a higher minimum wage than the federal floor (varying by region), and the New York State Department of Labor has specific guidance on overtime calculations for salaried non-exempt employees that can differ from federal methods in certain situations. See the New York overtime calculator →

Pennsylvania

Pennsylvania’s Minimum Wage Act (PMWA) explicitly prohibits the fluctuating workweek method. Non-exempt salaried employees in Pennsylvania must always be paid at the full 1.5× rate for overtime hours, using a regular rate based on a standard 40-hour week. Employers who have used the fluctuating workweek method in Pennsylvania may have underpaid workers. See the Pennsylvania overtime calculator →

Other states — including Illinois, Ohio, and North Carolina — generally follow the federal FLSA framework for overtime, but always verify the current rules in each state where your employees work before making payroll decisions.

Common Mistakes to Avoid

• ✗ Assuming all salaried employees are exempt. Salary is a payment method, not an exemption. A salaried employee earning $600/week who works as an office assistant almost certainly does not meet the duties or salary threshold tests for exemption.
• ✗ Using outdated salary thresholds. The federal exemption threshold has changed multiple times. Following a court ruling in November 2024, the current threshold is $684/week ($35,568/year). If you have employees whose exemption classification was based on a higher threshold that was later vacated, those employees may still be properly classified — but the classification should be reviewed against both the salary and duties tests.
• ✗ Not tracking hours for non-exempt salaried employees. The FLSA requires employers to keep records of hours worked for all non-exempt employees, regardless of whether they are paid by salary or hourly. If you don’t track hours, you cannot calculate overtime correctly — and you have no documentation if a wage claim arises.
• ✗ Using the fluctuating workweek method in a state where it’s banned. Pennsylvania prohibits it outright. Some other states have additional restrictions. Using this method in a prohibited state can result in underpaid overtime that must be corrected.
• ✗ Forgetting to recalculate the regular rate each week. Under the fluctuating workweek method, the regular rate changes every week based on actual hours worked. It is not a fixed number. If hours vary (as they must for this method to apply), the rate must be recalculated from the salary divided by actual hours each pay period.
• ✗ Misclassifying a role as exempt based on title alone. The FLSA does not recognize job titles as a basis for exemption. What matters is primary duty, pay level, and salary basis — not whether someone is called a “manager.” FLSA enforcement has long focused on misclassification, and it is one of the most common sources of wage and hour claims.

Tools That Make This Easier

These free calculators can help you estimate overtime pay under federal rules — and flag where state rules may differ:

Frequently Asked Questions

Content is based on publicly available federal and state sources. See our editorial standards.