How to Calculate Overtime Pay in 2026: Federal Rules, State Daily Overtime and Worked Examples

If you run payroll for a small business, overtime is where well-meaning employers most often get caught out. The rule sounds simple: time and a half after 40 hours. But the "time" has to be the employee's full regular rate, including bonuses and differentials, and some states add daily overtime on top. This guide shows employers, managers and hourly workers how to calculate overtime correctly in 2026. It covers the federal formula, worked examples with bonuses and two pay rates, which salaried staff are exempt now that the 2024 rule is gone, the daily overtime rules in California, Alaska, Nevada and Colorado, and the new no-tax-on-overtime deduction. Figures were checked against the Department of Labor, the IRS and state labor agencies in October 2026.

Quick answer

Under the Fair Labor Standards Act (FLSA), non-exempt employees earn at least 1.5 × their regular rate for every hour over 40 in a workweek. Overtime pay = regular rate × 1.5 × overtime hours, where the regular rate is total weekly pay (including nondiscretionary bonuses) ÷ total hours worked.

• $20/hour × 46 hours = $800 + (6 × $30) = $980

• Exempt salary floor: $684 a week ($35,568 a year); the 2024 increase was vacated

• California adds daily overtime after 8 hours and double time after 12

• Workers can deduct up to $12,500 of the overtime premium on 2025–2028 federal returns

• Private employers can't swap overtime pay for comp time

The federal overtime rule in plain terms

The FLSA requires covered, non-exempt employees to receive overtime of at least one and a half times their regular rate for every hour worked over 40 in a workweek. The Department of Labor defines a workweek as a fixed, recurring 168-hour period, seven consecutive 24-hour days. It doesn't have to run Monday to Sunday. You can start it at 12:01 a.m. Wednesday if that suits your shifts, but once it is set it stays fixed, and you can't change it to dodge overtime.

Each workweek stands alone. You cannot average hours across two weeks. An employee who works 50 hours one week and 30 the next is owed 10 hours of overtime for the first week, even though the two weeks average 40. Paying biweekly doesn't change this. Payroll still has to count hours week by week inside each pay period.

The FLSA does not require extra pay for weekends, holidays or nights as such. Those hours count toward the 40, and if they push the week over 40 the excess is overtime. Many employers pay holiday or weekend premiums by policy or union contract. Hours not worked, such as paid vacation, holidays and sick days, don't count toward the 40 under federal law, though some contracts treat them differently. Overtime is generally due on the regular payday for the period in which it was worked.

The FLSA sets no limit on how many hours an adult employee can work. It simply makes the extra hours cost more. Employees under 16 have strict hour limits under the child labor rules, and some states cap mandatory overtime in nursing and other industries.

Step one: find the regular rate of pay

"Time and a half" is 1.5 times the regular rate, not 1.5 times the advertised hourly wage. According to Department of Labor Fact Sheet #56A, the regular rate includes all pay for employment except items the law specifically excludes. You calculate it as total pay for the workweek, minus excluded items, divided by total hours actually worked that week.

Include: hourly wages, salaries, piece-rate earnings, commissions, shift differentials, hazard pay, on-call pay for hours worked, and nondiscretionary bonuses. A nondiscretionary bonus is any bonus promised in advance or tied to a measurable target, such as attendance, production, safety, sales quotas or a retention period. If employees know about it and expect it when they meet the condition, it goes in the regular rate.

Exclude: truly discretionary bonuses, where the employer alone decides at or near the end of the period whether to pay and how much, with no prior promise. Also exclude gifts not tied to hours or output, such as holiday gifts, pay for vacation, holidays and sick days not worked, reimbursed business expenses, and certain benefit contributions. Calling a bonus "discretionary" doesn't make it so. What counts is whether employees were led to expect it.

Leaving bonuses out of the regular rate is the most common overtime error in small businesses. Payroll systems handle the base rate automatically, but a production bonus added as a lump sum often never makes it into the overtime calculation. If you pay any incentive tied to a period, your payroll setup must recalculate overtime for every week in that period.

How to calculate overtime pay

1. 1

   Fix the workweek and total the hours

   Add all hours actually worked in the 168-hour workweek. Don't include paid holidays, vacation or sick hours not worked.

2. 2

   Add up the week's pay that counts

   Straight-time wages at each rate, plus commissions, differentials and any nondiscretionary bonus earned for that week.

3. 3

   Divide to get the regular rate

   Regular rate = weekly pay ÷ total hours worked.

4. 4

   Add the half-time premium

   Overtime premium = regular rate × 0.5 × hours over 40. Total pay = weekly pay from step 2 + premium.

   Tip: This 'premium' method gives the same answer as paying 1.5× for overtime hours, and it is the figure the IRS uses for the overtime deduction.

5. 5

   Apply any state rule that pays more

   Check for daily overtime, double time or seventh-day rules, and pay whichever total is higher.

Worked overtime examples

The examples below cover the situations small employers ask about most. Each one shows the result under the FLSA. State rules may add more, as covered in the next section.

Example 1 — straight hourly. Maria earns $20 an hour and works 46 hours. Straight time is 46 × $20 = $920. The overtime premium is 6 × ($20 × 0.5) = $60. Her gross pay is $980, the same as 40 × $20 + 6 × $30.

Example 2 — two pay rates in one week. Jamal works 30 hours as a cashier at $18 and 15 hours as a shift lead at $24, 45 hours in all. His straight-time pay is $540 + $360 = $900. His regular rate is the weighted average, $900 ÷ 45 = $20.00. The premium is 5 × $10.00 = $50, so his gross pay is $950. Paying overtime at the cashier rate would underpay him. As an alternative, the FLSA lets an employer pay overtime at the rate for the job actually done during the overtime hours, but only under an agreement made before the work is done.

Example 3 — a production bonus. Lena earns $18 an hour, works 48 hours and earns a $96 weekly production bonus. Straight time plus bonus is 48 × $18 + $96 = $960. Her regular rate is $960 ÷ 48 = $20.00. The premium is 8 × $10.00 = $80, so her gross pay is $1,040. Ignoring the bonus would give an $8 premium shortfall that week. Over a year, for a team of 20, that adds up to thousands of dollars in back wages. For a monthly or quarterly bonus, spread it over the weeks it covers and pay the extra overtime once the bonus is known.

Example 4 — a salaried non-exempt employee. Devon earns a $900 weekly salary for a 40-hour schedule but doesn't meet an exemption. His regular rate is $900 ÷ 40 = $22.50. In a 45-hour week he is owed 5 × $33.75 = $168.75 of overtime, for $1,068.75. Salaried does not mean exempt. Federal rules also allow a "fluctuating workweek" method for salaried staff whose hours vary, but it has strict conditions, and some states, including California, don't permit it.

Example 5 — tipped employees. For a tipped server whose employer takes a tip credit, the regular rate is based on the full minimum wage, not the reduced cash wage. Overtime is 1.5 times that full rate, minus the same tip credit taken for straight time. Tipped-employee overtime is a frequent audit finding, so restaurants should have their payroll provider confirm the setup.

Who is exempt: the 2026 salary threshold

An employee is exempt from overtime only if the job meets an FLSA exemption. The most common are the white-collar exemptions for executive, administrative and professional (EAP) employees. To qualify, the employee must generally be paid on a salary basis (a fixed amount each week that isn't cut for quality or quantity of work), at a salary of at least $684 a week, which is $35,568 a year, and must mainly perform the exempt duties set out in the regulations. Highly compensated employees earning at least $107,432 a year, including the weekly salary, face a lighter duties test. Computer professionals can also be exempt if paid hourly at $27.63 an hour or more.

You may have read that the threshold rose to $844 a week in July 2024 and was due to hit $1,128 in 2025. That 2024 rule was vacated nationwide by a federal court in Texas on November 15, 2024. The Department of Labor dropped its appeal in May 2026 and, on May 15, 2026, published a technical amendment in the Federal Register that took the 2024 text out of the regulations and restored the 2019 levels. The DOL had already been enforcing the 2019 figures since the court ruling, so for employers the practical effect was confirmation, not change. Any future increase would need a new rule with notice and comment.

State floors are often much higher. California requires exempt employees to earn at least twice the state minimum wage for full-time work. With the 2026 minimum at $16.90 an hour, that is $70,304 a year ($1,352 a week). Colorado's 2026 exempt salary is $57,784. New York, Washington and several other states also set thresholds above the federal one. Always apply whichever test protects the employee more.

Job titles don't decide exemption. An "assistant manager" who spends most of the shift running a register, or an "office manager" who mainly does data entry, is likely non-exempt whatever the salary. Misclassifying employees as exempt is one of the costliest payroll mistakes, because the back pay covers every overtime hour worked. If you also use contractors, see our guide to 1099 vs W-2 workers. Treating employees as contractors removes overtime protection only on paper.

Federal overtime thresholds (2026)

$684 a week

Minimum weekly salary for EAP exemption

$35,568 a year

$107,432

Highly compensated employee test

total annual compensation

$27.63 an hour

Hourly-paid computer employee exemption

$7.25 an hour

Federal minimum wage

many states are higher

State daily overtime: California, Alaska, Nevada and Colorado

Most states follow the federal 40-hour weekly rule. A handful add daily overtime, which changes the calculation for long shifts and compressed schedules. When state and federal rules both apply, pay whichever gives the employee more.

California has the strictest rules. Non-exempt employees earn 1.5 times the regular rate for hours over 8 in a workday, hours over 40 in a workweek, and the first 8 hours on the seventh consecutive day worked in the workweek. Double time applies to hours over 12 in a workday and to hours over 8 on the seventh consecutive day. A valid, employee-approved alternative workweek schedule, such as four 10-hour days, can change the daily trigger. Employees cannot waive overtime by agreement, and California counts some bonuses differently. A flat-sum bonus is divided by the legal maximum regular hours rather than all hours worked, which pushes the overtime rate up.

Take a California employee on $20 an hour working 10, 10, 10, 6 and 4 hours, 40 hours in all. Federal law owes no overtime. California owes 2 daily overtime hours on each of the three long days, 6 hours at a $10 premium, so $60 extra, for $860. If one of those days runs to 13 hours, the 13th hour is paid at double time ($40), hours 9 to 12 at time and a half ($30), and the weekly total still needs checking against 40.

Alaska requires overtime at 1.5 times the regular rate for hours over 8 in a day and over 40 in a week, under AS 23.10.060. The law doesn't apply to employers with fewer than four employees in the regular course of business, so it covers employers with 4 or more employees. Hours that already earned daily overtime aren't counted again toward the weekly total. Alaska's minimum wage is $14.00 an hour from July 1, 2026, which feeds into every regular rate calculation there. Employers and employees can adopt a voluntary flexible work hour plan, filed with the state labor department, to work 10-hour days without daily overtime.

Nevada ties daily overtime to pay level. From July 1, 2026, employees earning less than $18.00 an hour, which is 1.5 times the $12.00 an hour minimum wage, get time and a half for hours over 8 in any 24-hour period that starts when they begin work, as well as over 40 in the week. Employees paid at or above that rate get weekly overtime only. A mutually agreed schedule of four 10-hour days removes the daily trigger. Because the "workday" is a rolling 24 hours, a closing shift followed by an early opening shift can create daily overtime even if neither shift is longer than 8 hours.

Colorado requires overtime for hours over 40 in a workweek, over 12 in a workday, or over 12 consecutive hours regardless of when the workday starts, whichever pays more. Colorado also has its own exempt salary floor of $57,784 and a $15.16 an hour minimum wage in 2026, and several cities, including Denver, set higher local minimums.

Daily overtime rules compared

State	Daily trigger	Double time?	Who's covered
Federal (FLSA)	None — 40 hours a week only	No	Non-exempt employees of covered employers
California	Over 8 hours a day; 7th consecutive day	Over 12 hours a day; over 8 on the 7th day	Most non-exempt employees
Alaska	Over 8 hours a day	No	Employers with 4 or more employees
Nevada	Over 8 hours in a 24-hour period	No	Employees paid under $18.00 an hour
Colorado	Over 12 hours a day or 12 consecutive hours	No	Most non-exempt employees

Federal (FLSA)

Daily trigger

None — 40 hours a week only

Double time?

No

Who's covered

Non-exempt employees of covered employers

California

Daily trigger

Over 8 hours a day; 7th consecutive day

Double time?

Over 12 hours a day; over 8 on the 7th day

Who's covered

Most non-exempt employees

Alaska

Daily trigger

Over 8 hours a day

Double time?

No

Who's covered

Employers with 4 or more employees

Nevada

Daily trigger

Over 8 hours in a 24-hour period

Double time?

No

Who's covered

Employees paid under $18.00 an hour

Colorado

Daily trigger

Over 12 hours a day or 12 consecutive hours

Double time?

No

Who's covered

Most non-exempt employees

No tax on overtime: the 2025–2028 deduction

The One Big Beautiful Bill Act, signed in July 2025, created a federal income tax deduction for qualified overtime compensation. It runs for tax years 2025 through 2028. It doesn't change how you calculate overtime pay, but it changes what employers report and what workers ask about.

According to the IRS's updated FAQ (FS-2026-13, August 2026), only the premium portion of FLSA-required overtime qualifies, meaning the "half" in time and a half. Pay above what the FLSA requires doesn't count. That includes double time, state-law daily overtime, overtime under a union contract for hours the FLSA doesn't cover, and voluntary premiums. In the IRS's own example, an employee on $20 an hour who works 50 hours and is paid double time receives $200 of premium, but only $100 is qualified overtime compensation, because the FLSA required only $10 extra per hour for 10 hours. Exempt employees receive no qualified overtime compensation even if their employer pays them overtime by choice.

The deduction is capped at $12,500 per return, or $25,000 on a joint return. It is reduced once modified adjusted gross income exceeds $150,000, or $300,000 for joint filers. Workers claim it on Schedule 1-A whether they itemize or take the standard deduction. They need a valid Social Security number, and married workers must file jointly.

For a rough sense of the value, take a warehouse worker on $25 an hour with 300 FLSA overtime hours in 2026. The qualified premium is 300 × $12.50 = $3,750. If that falls in the 22% bracket, it cuts federal income tax by about $825. It does not reduce Social Security, Medicare, FUTA or state income tax, and employers must keep withholding as normal unless the employee files a new Form W-4 claiming the expected deduction in Step 4(b).

For employers, the main task is reporting. Beginning with 2026 wages, you report the qualified overtime amount on Form W-2 in box 12 with code TT. For 2025 the IRS waived separate reporting, and workers could estimate the amount from pay stubs. To report accurately, your payroll system has to split overtime into straight time and FLSA premium, and separate out any state-only or contractual premium. That is one more reason to get the regular rate right.

Common overtime mistakes and how to fix them

Leaving bonuses and differentials out of the regular rate. Audit your pay codes. Any code that is earned for working, hitting a target or staying through a period probably belongs in the regular rate. If you find past errors, recalculate the affected weeks and pay the shortfall with the next payroll.

Treating salaried employees as exempt by default. Check both the salary level and the duties for each salaried role against the federal floor of $684 a week and any higher state floor. Reclassifying someone as non-exempt is legal, but explain it to them and start recording their hours right away.

Averaging hours or banking comp time. Private employers cannot offset a long week with a short one, and cannot give time off later instead of overtime pay. They can schedule fewer hours later in the same workweek.

Unrecorded work. Pre-shift setup, post-shift cleanup, required meetings, training, and answering work messages after hours all count as hours worked if the employer knew or should have known. Under California rules, and under federal principles too, you can discipline an employee for unauthorized overtime, but you must still pay for it.

Missing state rules. A multi-state employer that applies only the federal 40-hour rule will underpay in California, Alaska, Nevada and Colorado. Set up each work location in payroll with its own rules.

The cost of getting it wrong is high. Under the FLSA, employees can recover unpaid overtime for two years, or three if the violation was willful, plus an equal amount in liquidated damages and their legal fees. States often allow longer lookback periods and their own penalties. Keep accurate time records for every non-exempt employee, review the overtime calculation whenever you add a new pay type, and keep payroll records for at least three years.

Overtime payroll review

0/8

• Workweek start day and time are fixed and documented
• All non-exempt hours are recorded, including pre- and post-shift work
• Every bonus, commission and differential pay code is flagged as regular-rate or excluded
• Weighted-average regular rate is used for employees with two pay rates
• Each exempt role passes both the salary and the duties test, federal and state
• State daily overtime rules are set for CA, AK, NV and CO work locations
• FLSA premium is tracked separately for W-2 box 12 code TT
• Overtime is paid on the regular payday for the period

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What to do next

Pick last month's payroll and recalculate overtime for three employees: one straight hourly, one with a bonus, and one who worked two jobs at different rates. If your figures match the payroll system, your setup is probably sound. If not, fix the pay codes before the next run. Use the salary slip generator to show employees how their straight time and overtime break down, and the hourly rate calculator to convert salaries into hourly figures. If you are hiring for the first time, get an EIN and read our guide to 1099 vs W-2 workers before the first paycheck.

Official overtime links

• DOL — Overtime payFLSA basics, workweek rules
• DOL — Fact Sheet #56A, regular rate of pay
• DOL — Fact Sheet #17A, white-collar exemptions
• Federal Register — May 15, 2026 technical amendment
• IRS — No tax on overtime FAQ (FS-2026-13)
• California — Overtime FAQs
• Alaska — Wage and Hour Pamphlet 100
• Nevada — Labor Commissioner bulletins
• Colorado — 2026 COMPS and PAY CALC Orders

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

How do you calculate overtime pay?

Under federal law, multiply the employee's regular rate by 1.5 for every hour over 40 in the workweek. A worker paid $20 an hour who works 46 hours earns 40 × $20 = $800 plus 6 × $30 = $180, so $980. The regular rate must include nondiscretionary bonuses, shift differentials and commissions, not just the base hourly wage.

Do salaried employees get overtime?

Yes, unless they are exempt. To be exempt as an executive, administrative or professional employee, a worker generally must be paid a salary of at least $684 a week ($35,568 a year) and mainly perform exempt duties. Some states set higher salary floors, such as $70,304 a year ($1,352 a week) in California. A salaried worker who fails either test is owed overtime.

What is the overtime salary threshold in 2026?

The federal threshold is $684 a week, or $35,568 a year, and $107,432 for highly compensated employees. The 2024 rule that would have raised it was vacated by a federal court in November 2024, and on May 15, 2026 the Department of Labor formally restored the 2019 levels in the Code of Federal Regulations.

Which states require daily overtime?

California pays time and a half after 8 hours in a workday and double time after 12. Alaska requires overtime after 8 hours a day for employers with 4 or more employees. Nevada requires it after 8 hours in a 24-hour period for workers paid under $18.00 an hour. Colorado requires it after 12 hours in a workday or 12 consecutive hours.

Is overtime pay tax free in 2026?

Not fully. From 2025 through 2028, eligible workers can deduct the FLSA-required half-time premium, up to $12,500 a year ($25,000 on a joint return), with a phase-out above $150,000 of modified AGI. Overtime is still subject to Social Security, Medicare and income tax withholding, and state-law overtime premiums don't qualify.

Can I give comp time instead of overtime pay?

Not in the private sector. Under the FLSA only state and local government employers can give compensatory time off instead of cash overtime. A private employer must pay overtime in cash on the regular payday for the period. It can reduce hours later in the same workweek to stay under 40, but it cannot bank hours across weeks.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Overtime Pay — US Department of Labor, Wage and Hour Division · accessed 9 October 2026
2. 2.Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees — US Department of Labor, Wage and Hour Division · accessed 9 October 2026
3. 3.Fact Sheet #56A: Overview of the Regular Rate of Pay Under the FLSA — US Department of Labor, Wage and Hour Division · accessed 9 October 2026
4. 4.Defining and Delimiting the Exemptions …; Implementation of Federal Court Judgments (FR Doc. 2026-09839) — Federal Register / US Department of Labor · accessed 9 October 2026
5. 5.Department of Labor Restores Salary Levels for FLSA White Collar Exemptions — Littler Mendelson · accessed 9 October 2026
6. 6.Questions and answers about the deduction for qualified overtime compensation (FS-2026-13) — Internal Revenue Service · accessed 9 October 2026
7. 7.What to know about the No Tax on Overtime deduction — Internal Revenue Service · accessed 9 October 2026
8. 8.Overtime FAQs — California Department of Industrial Relations, Labor Commissioner's Office · accessed 9 October 2026
9. 9.Minimum Wage FAQ — California Department of Industrial Relations · accessed 9 October 2026
10. 10.Wage and Hour Laws and Regulations (Pamphlet 100) — Alaska Department of Labor and Workforce Development · accessed 9 October 2026
11. 11.2026 Annual Bulletin — Daily Overtime — Nevada Office of the Labor Commissioner · accessed 9 October 2026
12. 12.INFO #1: 2026 COMPS & PAY CALC Orders — Colorado Department of Labor and Employment · accessed 9 October 2026