What is overtime pay?

Overtime pay is the extra compensation that eligible employees earn when they work more than a standard number of hours in a workweek—typically over 40 hours. Under the Fair Labor Standards Act (FLSA), most non-exempt employees must be paid at least 1.5 times their regular hourly rate for every hour worked beyond 40 per week.

For small business owners, properly calculating and managing overtime pay is crucial. It’s not just about staying compliant with labor laws—it’s also about keeping employees satisfied and payroll predictable. With tools like Homebase, you can easily track employee hours, flag overtime before it happens, and ensure accurate payroll every time.

Who qualifies for overtime pay?

Not all employees are entitled to overtime pay. Eligibility depends on whether an employee is exempt or non-exempt under the FLSA.

Non-exempt employees are usually paid hourly and qualify for overtime. Common roles include retail staff, restaurant workers, and hourly office employees.

Exempt employees, on the other hand, are typically salaried and meet specific criteria related to job duties and income level. These roles often include managers, administrative professionals, and certain specialized positions.

Employers must correctly classify employees. Misclassification can lead to unpaid wages, penalties, and lawsuits.

How is overtime pay calculated?

The basic formula for overtime pay is:

Overtime Pay = Regular Hourly Rate × 1.5 × Overtime Hours Worked

For example, if an employee earns $20/hour and works 45 hours in a week:

Regular pay = 40 hours × $20 = $800
Overtime pay = 5 hours × $30 (1.5 × $20) = $150
Total pay = $950

If an employee receives different hourly rates for different tasks, you may need to calculate a weighted average rate for overtime. Some states also have daily overtime rules (like California), so it’s wise to check local labor laws.

When does overtime kick in?

Federal law requires overtime pay when non-exempt employees work over 40 hours in a workweek. A workweek doesn’t have to align with the calendar week—it can start on any day, as long as it’s a consistent seven-day period.

Some states also require:

Daily overtime – Overtime for working more than a set number of hours in a single day
Double time – Extra pay for working beyond a higher daily threshold (e.g., over 12 hours in a day)

Understanding your state’s specific overtime rules is essential for full compliance.

Why is tracking overtime important?

For employers, overtime can be a budget buster if not monitored carefully. Untracked or unexpected overtime may:

Lead to higher payroll costs
Impact scheduling and staffing plans
Trigger compliance issues if underpaid

Employers can use a reliable time-tracking system like Homebase to spot potential overtime before it becomes a problem and plan schedules accordingly.

Try Homebase today to monitor employee hours and manage overtime automatically.

Best practices for managing overtime

If you’re offering overtime—or trying to avoid it—consider the following:

Set clear policies – Let employees know when overtime is allowed and whether pre-approval is required.
Use scheduling tools – Avoid accidental overtime with smart scheduling.
Track hours in real time – Know exactly how many hours each employee has worked each week.
Budget for overtime – Account for seasonal surges or busy periods where extra hours are likely.

Consistent and proactive overtime management can help protect your bottom line and keep your team running smoothly.

How Homebase helps you manage overtime pay

Manually calculating overtime can be a hassle, and mistakes are costly. Homebase makes it simple by:

Automatically calculating overtime pay based on your business’s rules
Flagging potential overtime before it happens so you can adjust schedules
Generating reports to review historical overtime data
Ensuring compliance with federal and state labor laws

Try Homebase Payroll to simplify overtime calculations and get peace of mind on payday.

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