Quick Answer: Under the FLSA, overtime is calculated at 1.5 times your hourly team's regular rate for all hours worked over 40 in a workweek. The "regular rate" includes their base pay plus tips, commissions, and non-discretionary bonuses, not just their hourly wage.
How Do You Calculate Overtime Each Week?
Overtime starts with knowing your workweek, totaling the hours your team actually worked, and adding up all the pay that must be included. That gives you the “regular rate,” which is total compensation divided by total hours.
From there, overtime is simple: any hours over 40 are paid at 1.5× the regular rate. Most mistakes happen when businesses use the base hourly wage instead of the full regular rate, especially when tips or commissions are involved.
Restaurant Example: A server who works more than 40 hours and receives tips must have those tips included when calculating the regular rate. Using only the hourly wage leads to underpaying overtime, one of the most common FLSA mistakes for restaurants and retail teams.
How Do You Calculate the Regular Rate for Overtime?
The regular rate isn't just based on hourly pay. It includes all remuneration for employment except specific statutory exclusions. You must include:
Always Include in the Regular Rate of Pay:
- Base hourly wages.
- Tips and service charges.
- Commissions and sales bonuses.
- Shift differentials.
- Production or attendance bonuses.
Retail Example: Your sales associate earns $15/hour, works 48 hours, and receives a $100 weekly sales commission.
Incorrect calculation: Overtime at $22.50/hour (ignoring commission)
Correct calculation: Regular rate = ($720 wages + $100 commission) ÷ 48 = $17.08/hour
Overtime premium: 8 hours × ($17.08 × 0.5) = $68.32
Rare exclusions: Only truly discretionary bonuses, paid time off, and legitimate expense reimbursements can be excluded from overtime calculations. Most restaurant and retail bonuses—such as attendance, sales, or production incentives—must be included. Knowing the difference helps you avoid underpaying overtime.
Who Qualifies for Overtime Pay?
Nearly all hourly restaurant and retail teams are "non-exempt" and must receive overtime pay. This includes servers, cooks, hosts, bartenders, sales associates, cashiers, and stock workers.
To be exempt from overtime, your hourly teams must meet all three tests:
- Salary basis: Paid a predetermined salary (not hourly).
- Salary level: At least the salary threshold of $684/week ($35,568 annually).
- Duties test: Executive duties, including hiring, firing, directing work, and exercising independent discretion in business judgment.
A common mistake is calling someone an "assistant manager". That doesn't make them exempt if they spend most of their time performing the same duties as hourly teams. A cook who occasionally supervises others but primarily prepares food is non-exempt, regardless of title.
Restaurant Reality Check: Your kitchen manager earning $650/week is automatically non-exempt and entitled to overtime pay. They fall below the federal salary threshold required for any exemption. Even if their primary duties are management-related, the inadequate salary alone disqualifies them from exempt status.
How Do Federal and State Overtime Laws Work Together?
When federal and state overtime laws differ, you must follow whichever law is more generous to your hourly teams. The FLSA sets the federal floor; states can demand more.
Four states require overtime pay before you hit 40 weekly hours:
- California: Overtime at 1.5x after 8 hours/day, double time after 12 hours/day.
- Alaska: Overtime at 1.5x after 8 hours/day OR 40 hours/week (whichever provides greater benefit to your hourly teams), double time after 12 hours/day.
- Nevada: Overtime at 1.5x after 8 hours/day (for hourly teams earning less than 1.5x the state minimum wage), or after 40 hours/week.
- Colorado: Overtime at 1.5x for hours over 40 in a workweek or over 12 in a workday.
These daily overtime requirements add complexity to multi-state operations, but understanding them protects you from compliance violations.
The Real Impact: A California server working three 11-hour shifts (33 total hours) gets 9 hours of overtime under California state law, despite working under 40 hours. Federal law would require zero overtime. This is because California requires overtime pay at 1.5x the rate for any hours over 8 in a single workday, making it the most stringent state daily overtime requirement in the nation.
If you operate in multiple states, you need separate compliance strategies for each location. What's legal in Pennsylvania may violate California law.
How Does Homebase Help You Stay Ahead of Overtime Costs?
Accurate overtime calculation starts with accurate time tracking. Homebase captures hours worked through tools like the time clock and keeps schedules aligned so you can spot when team members are nearing overtime limits. With clearer visibility into labor patterns, it’s easier to prevent costly surprises.
Homebase also simplifies payroll preparation with resources like our payroll management guide, helping you move from worked hours to correct overtime pay with confidence. Together, these tools support compliant, reliable payroll workflows.
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Sources and Methodology
At Homebase, we rely on up-to-date, authoritative sources to ensure every Question Center article reflects accurate guidance for small business owners. We start with primary information from federal labor agencies, verify details using official wage and hour regulations, and use reputable state resources only to supplement—not replace—official law.
For this piece, we referenced guidance from the U.S. Department of Labor’s Wage and Hour Division, including federal overtime and regular-rate rules, as well as state-specific overtime requirements published by California, Alaska, Nevada, and Colorado labor agencies.