FLSA Overtime Rules: Complete Guide to Exempt vs. Non-Exempt Employees

The Fair Labor Standards Act (FLSA) governs minimum wage, overtime pay eligibility, recordkeeping, and youth employment standards for private employers and federal, state, and local governments.

One of the most expensive compliance errors a company can make is misclassifying a non-exempt employee as exempt from overtime. When the Department of Labor (DOL) finds misclassification, employers face mandatory payment of back overtime wages for up to three years, equal liquidated damages, and civil monetary penalties.

This comprehensive guide clarifies the exact rules governing FLSA overtime eligibility, how to perform duties tests, and how overtime is calculated across both hourly and salaried staff.

---

1. The Core Rule: Who is Entitled to Overtime?

Under Section 7 of the FLSA (29 U.S.C. § 207), covered non-exempt employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rate of pay (commonly known as "time and a half").

Key Principles of Federal Overtime:

• The Workweek Rule: Overtime is calculated on a fixed, recurring 7-consecutive-day workweek (168 consecutive hours). Averaging hours over two or more weeks is strictly prohibited under federal law.
• No Cap on Hours: The FLSA places no limit on the number of hours an employee aged 16 or older may work in a week.
• Paid Time Off Excluded: Holidays, sick leave, jury duty, and vacation time do not count as "hours worked" toward the 40-hour threshold.

Calculate Your Overtime: Use our free Overtime Calculator or Time and a Half Calculator to compute regular vs. overtime wages.

---

2. The Three Tests for Overtime Exemption

To be exempt from overtime pay, an employee must satisfy all three of the following statutory tests established by the DOL:

┌─────────────────────────────────────────────────────────────┐
│ 1. Salary Basis Test                                        │
│    Paid a predetermined, fixed salary not subject to        │
│    reduction based on quality or quantity of work.          │
└──────────────────────────────┬──────────────────────────────┘
                               ▼
┌─────────────────────────────────────────────────────────────┐
│ 2. Salary Level Test                                        │
│    Must meet or exceed the federal statutory weekly salary   │
│    threshold (higher thresholds apply in CA, NY, and WA).   │
└──────────────────────────────┬──────────────────────────────┘
                               ▼
┌─────────────────────────────────────────────────────────────┐
│ 3. Standard Duties Test                                     │
│    Actual day-to-day job duties must meet executive,        │
│    administrative, professional, computer, or outside sales │
│    criteria. Job titles alone never determine exemption.    │
└─────────────────────────────────────────────────────────────┘

---

3. Breakdown of the Duties Tests (EAP Exemptions)

A. Executive Exemption

• Primary Duty: Management of the enterprise, or a recognized department/subdivision.
• Supervision: Must customarily and regularly direct the work of two or more full-time employees (or the equivalent in part-time employees).
• Authority: Must have the authority to hire or fire employees, or the employee’s suggestions and recommendations must be given particular weight.

B. Administrative Exemption

• Primary Duty: Office or non-manual work directly related to the management or general business operations of the employer or customers (e.g., HR, accounting, compliance, marketing strategy).
• Discretion: Must include the exercise of discretion and independent judgment with respect to matters of significance.

C. Learned Professional Exemption

• Primary Duty: Performance of work requiring advanced knowledge in a field of science or learning (e.g., certified accountants, doctors, attorneys, registered nurses, engineers).
• Education: Advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction.

---

4. Can Salaried Employees Get Overtime?

Yes. A widespread misconception among business owners and workers is that being on a "salary" automatically forfeits overtime.

If a salaried employee earns less than the minimum statutory threshold OR if their daily duties do not meet one of the white-collar exemptions, they are legally classified as a Salaried Non-Exempt Employee.

How to Calculate Overtime for Salaried Non-Exempt Employees:

1. Find Regular Hourly Rate: $\text{Regular Rate} = \frac{\text{Weekly Salary}}{\text{Regular Scheduled Hours}}$
2. Calculate OT Premium: Overtime hours $\times (\text{Regular Rate} \times 1.5)$

• Example: An employee receives a $800/week salary for a 40-hour schedule and works 48 hours in a given week:
  • Regular rate: $$800 \div 40 = $20.00/\text{hr}$
  • Overtime rate: $$20.00 \times 1.5 = $30.00/\text{hr}$
  • Overtime pay (8 hours): $8 \times $30.00 = $240.00$
  • Total Gross Earnings: $$800 + $240 = \mathbf{$1,040.00}$

Convert and project your pay across all schedules with our Hourly Paycheck Calculator.

---

5. Summary Compliance Checklist for Employers

1. Audit Job Descriptions: Do not rely on titles like "Assistant Manager" or "Lead Coordinator" without auditing actual daily decision-making power.
2. Track All Hours for Non-Exempt Staff: Even if salaried, non-exempt staff must log every hour worked to ensure proper compensation.
3. Check State Regulations: California, New York, Alaska, and Washington enforce higher salary thresholds and daily overtime rules that supersede federal standards.