Key Takeaways
- A company overtime policy is a formal document that defines which employees are eligible for overtime pay, how overtime is authorized, how pay is calculated, and what happens when overtime is worked without prior approval.
- Under the FLSA, non-exempt employees must be paid at least 1.5x their regular rate of pay for all hours worked beyond 40 in a workweek - this applies regardless of whether the overtime was pre-approved, making authorization procedures critical but not a substitute for payment.
- The regular rate of pay for overtime calculations is not simply the base hourly rate - it must include shift differentials, non-discretionary bonuses, and certain other compensation, which is where most overtime calculation errors and resulting FLSA violations occur.
What is a Company Overtime Policy?
A company overtime policy is a formal HR document that defines which employees qualify for overtime pay, how overtime must be authorized before it is worked, how pay is calculated for different employee types, and the consequences of working unauthorized overtime. According to the U.S. Department of Labor, overtime violations are among the most common and costly wage and hour claims faced by US employers - most of which stem from misclassification or calculation errors rather than deliberate avoidance.
Overtime without a written policy creates two problems simultaneously. Employees work extra hours without authorization and expect payment. Managers deny payment because it was not approved. Both are wrong - and the organization is exposed to FLSA liability regardless.
Qureos provides a free company overtime policy template. Download it in one click and pair it with our attendance policy and PTO policy for a complete working hours framework.
FLSA Overtime Rules: What Employers Must Know
Who is covered
The Fair Labor Standards Act divides employees into two categories. Non-exempt employees must receive overtime pay for all hours over 40 in a workweek. Exempt employees - those who meet specific salary and duties tests for executive, administrative, professional, or other defined exemptions - are not entitled to overtime pay under federal law. See our compensation policy for how exempt vs non-exempt classification connects to salary band decisions.
As of 2024, the salary threshold for most white-collar exemptions is $684 per week ($35,568 annually). Employees paid below this threshold cannot be classified as exempt regardless of their job duties. Note: Several states have higher thresholds - always check applicable state law.
How overtime pay is calculated: three scenarios
Most employers calculate overtime incorrectly because they use base pay only. The FLSA requires overtime to be calculated on the regular rate of pay, which includes additional compensation beyond base wages.
Scenario 1 - Hourly employee, no additional pay: Employee earns $20/hour and works 45 hours in a week. Regular rate = $20. Overtime pay = 5 hours x ($20 x 1.5) = $150. Total weekly pay = (40 x $20) + $150 = $950.
Scenario 2 - Hourly employee with non-discretionary bonus: Same employee receives a $100 productivity bonus that week. Regular rate must be recalculated: ($20 x 45 hours + $100) / 45 hours = $22.22. Overtime premium = 5 hours x ($22.22 x 0.5) = $55.56 additional. Most employers miss this step and underpay overtime as a result. See our bonus policy for the distinction between discretionary and nondiscretionary bonuses that determines whether inclusion in overtime calculations is required.
Scenario 3 - Salaried non-exempt employee: Employee earns $800/week salary and works 48 hours. Regular rate = $800 / 48 hours = $16.67/hour. Overtime premium for 8 hours = 8 x ($16.67 x 0.5) = $66.67. Total = $800 + $66.67 = $866.67. Note: This is the fluctuating workweek method - confirm this arrangement complies with your state law before applying it.
State law considerations
Several states have overtime rules that are more generous than the FLSA. California requires overtime for hours worked beyond 8 in a single day (not just 40 in a week) and double time for hours beyond 12 in a day. Alaska and Nevada have similar daily overtime triggers. Always apply whichever standard - federal or state - provides the greater benefit to the employee.
What Your Overtime Policy Must Cover
Employee Classification
Define which roles are classified as exempt and non-exempt. List the FLSA exemption category that applies to each exempt role and confirm that the role meets both the salary threshold and the applicable duties test. Misclassification is the most common source of wage and hour liability. Coordinate this with your compensation policy to ensure salary bands reflect the correct exemption thresholds.
Authorization Procedure
Require that overtime be approved by a manager before it is worked, except in genuine emergency situations. Specify the approval channel (written request, HR system, email to manager), the lead time required, and who has authority to approve overtime above a defined threshold. Use HR email templates to standardize overtime authorization communications.
Unauthorized Overtime
State clearly: unauthorized overtime must still be paid. The FLSA does not allow employers to withhold overtime pay because it was not approved. However, working unauthorized overtime is a policy violation subject to discipline. Connect this to your attendance policy for how unauthorized schedule deviations are handled.
Record-Keeping Requirements
The FLSA requires employers to maintain accurate time records for all non-exempt employees for at least 3 years. Define how time is recorded (time clock, HR system, manual timesheet), the deadline for submitting timesheets, and the manager's responsibility to review and approve records before payroll closes.
Overtime Pay Calculation Method
State explicitly how overtime is calculated for your workforce - particularly how non-discretionary bonuses are incorporated into the regular rate. Reference your bonus policy for the definition of discretionary vs nondiscretionary that determines inclusion in the overtime calculation.
Frequently Asked Questions
Does an employer have to pay overtime if it was not approved?
Yes. Under the FLSA, all hours worked by non-exempt employees must be compensated, including unauthorized overtime. Employers can discipline employees for working overtime without approval, but cannot withhold the pay owed. Attempting to do so creates significant wage and hour liability.
What is the overtime threshold in 2025?
The federal FLSA salary threshold for white-collar exemptions is $684 per week ($35,568 annually). Employees paid below this level cannot be classified as exempt from overtime. Several states have higher thresholds - California, Washington, New York, and others - and employers must comply with whichever is higher.
How is overtime calculated for employees who receive bonuses?
Non-discretionary bonuses (those promised or announced in advance) must be included in the regular rate of pay before calculating overtime. See our bonus policy for the full discretionary vs nondiscretionary distinction and its legal implications.
Can salaried employees receive overtime?
Yes, if they are classified as non-exempt. Salaried non-exempt employees receive a guaranteed salary regardless of hours worked, but are still entitled to overtime for hours over 40. The regular rate calculation differs from hourly employees and depends on whether the fluctuating workweek method is used.
What records must employers keep for overtime?
The FLSA requires employers to keep payroll records, including time records for non-exempt employees, for at least 3 years. Records must include the employee's name, hours worked each day and week, total straight-time and overtime earnings, and deductions made. Gaps in time records are treated as evidence in favor of the employee in wage disputes.
Conclusion
An overtime policy does not prevent overtime - it governs it. Clear authorization procedures reduce unplanned overtime costs. Correct calculation methods eliminate the most common source of wage claims. And documented records protect the organization when disputes arise.
Download the free Qureos overtime policy template, confirm your employee classifications, and implement a calculation process your payroll team can apply consistently. Pair it with our attendance policy, PTO policy, and bonus policy for a complete working hours and compensation framework. Use Qureos to manage workforce planning and keep hiring aligned with your operational capacity.
