How to Calculate Overtime Pay (FLSA Rules Explained)

Most people know overtime as "time and a half," but the actual calculation trips up plenty of employers — especially when bonuses or multiple pay rates are involved. Getting it wrong is one of the most common causes of wage claims. Here's how overtime works under federal law and how to calculate it correctly.

When overtime applies

Under the federal Fair Labor Standards Act (FLSA), most hourly (non-exempt) employees must be paid overtime for hours worked over 40 in a single workweek. A few things to keep straight:

• It's based on a fixed seven-day workweek, not a pay period. This matters because a biweekly or semimonthly pay period spans multiple workweeks, and overtime is owed per workweek — you can't average hours across the period.
• Only hours actually worked count toward the 40 — paid time off and holidays usually don't, even though PTO is taxed exactly like worked hours.
• Exempt employees (certain salaried roles meeting duties and salary tests) generally don't get overtime.

Some states go further than federal law. California, for example, requires daily overtime after 8 hours and double-time after 12. Always apply whichever rule — state or federal — is more generous to the employee.

The "regular rate" is the key

Overtime is 1.5× your regular rate, and the regular rate isn't always just your base hourly wage. It includes most forms of compensation for the week — notably nondiscretionary bonuses (like a production or attendance bonus). It excludes things like discretionary gifts and reimbursements.

So the formula is:

1. Add up total straight-time earnings for the week (including qualifying bonuses).
2. Divide by total hours worked to get the regular rate.
3. Multiply the regular rate by 0.5 for each overtime hour (you've already been paid straight time on those hours).

What counts toward the regular rate

Include shift differentials, production and attendance bonuses, and commissions — anything promised in advance for work performed. Exclude discretionary gifts, expense reimbursements, and paid-leave hours. The test is roughly whether the employee could have expected the payment for doing the work.

Why the multiplier is 0.5, not 1.5

Step 3 uses 0.5 because straight time on those hours is already counted in step 1. Multiplying by the full 1.5 on top of total earnings pays the base hour twice — a common and expensive arithmetic slip.

Worked example: simple hourly

Say you earn $20/hour and work 45 hours in a week.

Worked example: with a bonus

Same $20/hour and 45 hours, but you also earned a $90 nondiscretionary bonus this week.

• Straight-time total: (45 × $20) + $90 = $990
• Regular rate: $990 ÷ 45 hours = $22.00
• Overtime premium: 5 hours × ($22.00 × 0.5) = $55
• Total due: $990 + $55 = $1,045

Notice the bonus pushed the regular rate — and therefore the overtime — higher. Forgetting to fold bonuses into the regular rate is a classic payroll mistake.

This is general guidance, not legal advice. Overtime exemptions and state rules are detailed — confirm specifics with your state labor agency or an employment attorney.

Get overtime right on the stub

Overtime should appear as its own line so employees can verify it — usually labelled OT, as covered in pay stub abbreviations and codes. Separating it also makes the gross figure auditable, which is the first thing anyone checks when reading a pay stub. OakPaystubs lets you enter regular and overtime hours separately and calculates the pay and taxes automatically, producing an accurate, itemized stub for every pay period.