Overtime pay is a double-edged sword for many employers. While it can signal healthy productivity and strong demand, excessive overtime costs can strain your payroll and cash flow. Staying compliant — and strategic — with overtime is more important than ever.
Here’s a refresher on the current rules and how you can better manage overtime in your organization.
Overtime Rules: Where They Stand Now
Under the Fair Labor Standards Act (FLSA), most nonexempt hourly employees must receive overtime pay for any hours worked over 40 in a single workweek. Note that a “workweek” doesn’t have to align with the calendar — it could be any recurring 7-day period, such as Wednesday to Tuesday.
To qualify as exempt from overtime and minimum wage laws, an employee generally must:
- Earn at least $684 per week (or $35,568 annually), and
- Perform specific executive, administrative, or professional duties, as defined by the U.S. Department of Labor.
Job titles alone don’t determine exemption status. Even some salaried employees may be eligible for overtime if they don’t meet both the pay and duties tests.
For highly compensated employees (HCEs), the threshold is currently $107,432 annually — provided they receive at least $684 weekly and perform at least one of the required duties.
Overtime Pay: Common Pitfalls and State Considerations
Overtime must be paid at 1.5 times the employee’s regular rate of pay. Employers can include nondiscretionary bonuses and incentive pay — such as those based on performance or sales — to meet up to 10% of the salary threshold for exemption. These payments must be made at least quarterly to qualify.
Keep in mind that state laws may be stricter than federal guidelines. When both apply, employers must follow the standard that’s more favorable to the employee.
Smart Strategies for Managing Overtime
Managing overtime isn’t just about staying compliant — it’s also about protecting employee well-being and your bottom line. Excessive hours can lead to:
- Fatigue and safety risks
- Increased mistakes and inefficiency
- Employee burnout and turnover
Here are some proactive strategies to control overtime costs:
- Evaluate staffing needs: If overtime is consistent, it may be more cost-effective to hire additional employees.
- Adjust project timelines: Overly ambitious deadlines often lead to unnecessary overtime.
- Cross-train your workforce: Reducing dependency on one employee for critical tasks helps distribute workload more evenly.
- Leverage workforce management software: Use digital tools to monitor overtime hours, spot trends, and flag anomalies by department or location.
- Automate where possible: Streamlining repetitive tasks with automation reduces the need for after-hours work.
- Improve scheduling efficiency: Accurate forecasting and shift planning help avoid understaffing and unplanned overtime.
Regulations May Change Again
The rules for overtime were briefly amended in 2024 under the Biden administration, but a federal court struck them down in November. Although the Department of Labor has appealed, the outcome is uncertain — especially under the current administration.
There’s also a potential new direction: President Trump has proposed making overtime income tax-free, which could emerge in future legislation. Regardless of the direction policy takes, it’s critical to stay informed and adaptable.
Get Help Navigating Payroll and Overtime Compliance
Staying compliant with overtime regulations is just one piece of the payroll puzzle. We can help you implement cost-effective strategies, assess staffing models, and ensure your practices align with federal and state rules.
Contact us today to review your current overtime procedures and optimize your payroll strategy.
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