Overtime Pay Laws Every Small Business Owner Must Know

Overtime Pay Laws Every Business Owner Needs to Know

Do you have employees at your business? If so, you need to be aware of overtime pay laws and how they can affect your business. The Fair Labor Standards Act (FLSA) established overtime pay rules, along with minimum wage, child labor laws, recordkeeping, and more. Take a look at the overtime pay laws you need to know.

Have more questions about the Fair Labor Standards Act rules? Download our free FLSA Cheat Sheet guide to learn more.

Federal overtime laws

In order to protect employee rights, federal overtime laws make sure qualifying individuals receive extra compensation for extra work. Unless an employee has exempt status, you are required to follow the federal law for overtime.

Exempt vs. nonexempt employees

You need to classify your employees correctly before you can run payroll. Knowing the difference between exempt and nonexempt employees will determine whether you must pay your employees overtime.

Exempt employees

Exempt employees are not protected by FLSA overtime laws. Do not pay these employees overtime. In order to have exempt employee status, an employee must meet the following three requirements:

  1. The employee is paid at least $35,568 annually or $684 per week (beginning 2020)
  2. The employee is paid on a salary basis
  3. The employee has executive, administrative, or professional job duties that are considered exempt

Nonexempt employees

You must pay your nonexempt employees overtime. Employers who don’t provide overtime pay to nonexempt employees violate federal law for overtime. Nonexempt employees do not meet the three exempt employee requirements. Though many nonexempt workers are paid hourly wages instead of salaries, some nonexempt employees can be salaried.

Nonexempt employees must be paid at least the federal minimum wage and receive overtime pay for any hours worked over 40 hours per week.

Overtime rates

Compensate nonexempt employees with the federal overtime rate unless your state enforces overtime laws. If your state adds onto the federal overtime law, you must follow the overtime rates for your state.

How much is overtime pay?

According to federal overtime pay laws, you must pay your nonexempt employees time and one-half for hours worked over 40 per workweek.

The FLSA does not limit the hours a person 16 years or older can work as long as they are fairly compensated. For example, if an employee works 70 hours in one week, it is perfectly legal—as long as you compensate them with overtime pay.

Many businesses choose to offer their employees time and one-half if they work holiday shifts, even if they work less than 40 hours in the workweek. However, there is no federal overtime law on whether employees should be paid the overtime rate on working holidays.

Overtime example

Let’s say you have a nonexempt employee who earns $10 per hour. They work 50 hours during one week. You will pay them the normal wages for the first 40 hours. Pay the employee the overtime rate for the other 10 hours:

Overtime Pay Laws

Keep records

FLSA timekeeping requirements are another facet of overtime pay rules. As an employer, you must keep payroll records for each nonexempt employee. These records are important in case your employee claims you violated FLSA requirements.

The payroll records must contain personal information like an employee’s name, address, birth date, etc. You must also keep attendance management records that indicate the number of hours an employee puts in per workweek. Here are some of the records you need to hang onto relating to work, pay, and overtime:

  • Time and day of the week that the workweek begins
  • Hours worked each day
  • Total hours worked each week
  • Hourly pay rate
  • Overtime earnings each week

FLSA overtime violations

Violating FLSA overtime laws can spiral into a lawsuit. Make sure you correctly classify your employees as exempt or nonexempt. Pay employees for their work outside of your business location. And, don’t forget to keep records and compensate nonexempt employees for overtime work.


The FLSA offers one exception to overtime pay, but the rules are very particular. Compensatory time, or “comp time,” is where an employee can receive paid time off work.

Under federal law, public employers (i.e., state or local government agencies) are allowed to give their employees comp time instead of overtime pay. However, most businesses cannot legally offer compensatory time off.

Overtime pay laws by state

In some states, there are additional overtime laws you must abide by. All states must use the federal law as a baseline, but they can add to it. If your state has overtime laws, follow your state.

Some state overtime laws require pay if an employee works over a certain number of hours in one day. For example, if you own a business in Colorado, you must provide overtime pay for hours worked over 40 hours a week as well as if an employee works over 12 hours in a day.

Other state laws go farther than overtime laws for extra hours. A state can require employers to pay employees overtime if they work on holidays. If you are a business owner living in Rhode Island, for example, you might need to pay employees holiday pay overtime if they work on Sundays and holidays, depending on your industry.

Check with your state department of labor for more information.

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