What Is Overtime?

Overtime is any work hours that exceed an employee’s regularly scheduled working hours. Overtime also often refers to overtime pay, the compensation an employee receives for the additional time they have worked which is usually calculated at a different rate than regular pay. 

What constitutes a regular working schedule—and, therefore, overtime—varies. Some countries provide a legal definition of overtime. For example, under US law overtime is any work hours exceeding 40 hours in a workweek. 

Types of Overtime

Subject to any legal requirements, types of overtime include

• time off in lieu (TOIL). Rather than paying overtime, an employee accrues additional paid time off as compensation for any extra hours worked.
• Voluntary overtime is overtime offered to employees that they can accept or refuse without any repercussions.
• Compulsory overtime is mandatory overtime that an employee must accept under the terms of their employment contract.

Where a role potentially involves overtime, any conditions and expectations around it should be set out in an employee’s work contract. 

Overtime in the US: Fair Labor Standards Act

In the US, overtime is regulated at a federal level by the Fair Labor Standards Act (FLSA). 

The FLSA applies to any US employer with annual sales of $500,000 or more or who is engaged in interstate commerce. The interstate commerce requirement has been interpreted very broadly, meaning the FLSA applies to most US employers. 

The FLSA defines overtime as any work beyond 40 hours in a workweek. A workweek is 7 consecutive 24-hour periods. Employers can decide what day and time to start a workweek for the purposes of overtime, as long as they don’t later change it to avoid paying. Overtime doesn’t include regular work performed on weekends, holidays, or other days off unless it becomes overtime by definition. 

Under the FLSA, employers must pay nonexempt employees overtime at a minimum of 1.5 times their regular pay rate. 

Nonexempt employees

Only nonexempt employees receive overtime.

There is a range of criteria to determine whether an employee is exempt from receiving overtime under the FLSA. The list of exempt employees includes

• salaried employees who earn the minimum salary amount—currently $684 a week or $35,568 a year—and based on their work duties, work as an executive, administrative, professional, or outside sales employee
• certain “computer professional employees”
• independent contractors
• commissioned sales employees if more than 50% of their earnings are commission-based and they average at least 1.5 times the minimum wage per hour worked
• drivers, loaders, and mechanics under certain circumstances
• specific roles including farmworkers, some seasonal workers, airline employees, local delivery drivers, taxi drivers, and switchboard operators. 

This means you shouldn’t assume that a salaried employee isn’t owed overtime. Under the FLSA, overtime must be paid to both hourly and certain salaried employees. 

As an employer, it’s your responsibility to properly categorize your employees as exempt or nonexempt for the purposes of overtime. The FLSA criteria around this can be complex to understand and apply so it’s worth seeking legal advice on this.

Overtime

The FLSA only counts “actual work time”—when an employee is performing active work duties—when calculating overtime.

Certain types of work hours may not count toward the 40-hour threshold.

• additional pay such as holiday or sick pay. For example, if you work 9 hours each day Monday to Wednesday and then are off sick on Thursday and Friday, your sick pay hours do not count towards calculating overtime for that week. 
• meal periods do not count towards overtime—as long as employees are fully relieved of their work duties during this time
• certain shifts for emergency service workers. Some emergency service workers such as firefighters, police officers, and EMS employees cover shifts according to a work period longer than the 7-day workweek. Their hours during this work period can be more than the standard 40-hour workweek. As long as their hours do not exceed the agreed work period, then they are not paid overtime.  

The standards under the FLSA are the minimum. Employers can decide to offer more favorable overtime conditions. This could include counting overtime from an earlier starting point than 40 hours, paying overtime at a higher rate—for example, double-time pay—or allowing holiday and sick leave days to count towards overtime. 

Some states also have their own overtime laws. For example, several states say that anything over 8 hours in a day is overtime, rather than the federal requirement of 40 hours in a week. Where both state and federal overtime laws apply, the standard that is more favorable to the employee should be applied. 

What Happens if You Fail to Pay Overtime?

If you don’t pay your employees overtime where you’re legally obligated to do so, you may face legal consequences—which could include being sued by your employees. This is why it’s essential to understand your legal obligations and how to properly categorize employees as exempt or nonexempt. 

In the US, the Department of Labor (DOL) has the power to investigate any pay issues via its Wage and Hour Division. Where you have failed to pay overtime, the DOL can order you to pay a liquidated damages penalty on top of any unpaid overtime owed to employees. 

If your actions appear intentional, you can face large fines and even imprisonment in serious cases. 

What Is the Maximum Amount of Overtime an Employee Can Work?

You need to check your local laws for any limits as to the amount of overtime an employee can legally work. 

In the US, there is no limit under the FLSA for the number of overtime hours an employee can work, as long as it does not endanger the health or safety of the employee. 

How To Calculate Overtime Pay

The formula to estimate an employee’s overtime pay is

(Actual hours worked – standard working hours) x (hourly pay rate x overtime rate)

The hourly pay should reflect any non-discretionary additional pay on top of an employee’s standard hourly rate, such as shift differential or production bonuses. 

For example, say you are a US employer. Your employee Sarah typically works a standard 40-hour week and is paid $25 an hour, including non-discretionary pay. However, last week Sarah worked 47 hours.

To estimate Sarah’s overtime pay

(47 – 40) x (25 x 1.5) = $262.50

Sarah’s total pay for last week is, therefore, $1262.50 ($1000 normal pay + $262.50 overtime pay).

For US employers, the DOL also provides an overtime calculator here.

Conclusion

What constitutes overtime—the hours an employee works in addition to their standard working hours and the accompanying increased rate of pay—varies depending on where you are based. In the US, the Fair Labor Standards Act defines overtime as any work beyond 40 hours in a workweek and requires employers to pay employees overtime at a rate of 1.5 times their regular pay. Be sure to check the overtime laws in your country and state for the minimum standards you need to comply with—as failing to do so can result in severe penalties. It’s also essential to carefully manage and track overtime to ensure you’re paying your employees correctly.