How to Calculate Overtime Pay for Hourly and Salaried Employees in 2025

Understanding how overtime pay works is essential for employers and employees alike. While calculating overtime for hourly workers is usually straightforward, overtime rules for salaried employees can be more complex—especially with the updated federal regulations taking effect in 2024 and 2025.

This guide explains how overtime pay is calculated, who qualifies for it, and what the latest Department of Labor (DOL) rules mean for exempt and non-exempt employees.

How Overtime Pay Works for Hourly Employees

For hourly workers, overtime pay is typically easy to calculate.

Under federal law, non-exempt employees must receive:

✔ 1.5 times their regular hourly rate

✔ for all hours worked over 40 in a workweek

This is commonly referred to as “time and a half.” Employers must track all hours worked and compensate employees accordingly.

Overtime Rules for Salaried Employees

Many people assume salaried workers are automatically exempt from overtime—but that’s not always true.

The Department of Labor requires overtime pay for any employee who does not meet the exemption criteria, regardless of whether they receive an hourly wage or a fixed salary.

This means some salaried employees must also be paid overtime, and calculating it requires converting their weekly salary into an hourly equivalent.

Major Change to Overtime Eligibility: New DOL Salary Thresholds

The Department of Labor implemented significant updates to overtime regulations that expand eligibility beginning July 1, 2024, with further increases in January 2025.

These changes raise the salary threshold required to classify an employee as exempt from overtime.

July 1, 2024 Overtime Update

To qualify as exempt from overtime, salaried employees must earn at least $844 per week.

This equals $43,888 per year.

Employees earning below $844 per week:

1. must have their hours tracked
2. must be paid overtime for working more than 40 hours in a week
3. cannot be treated as exempt, regardless of job title

This rule applies to all exempt categories, including:

1. executive
2. administrative
3. professional
4. outside sales
5. computer employees

January 1, 2025 Increase

Starting January 1, 2025, the salary threshold rises again—to $58,656 per year.

Any salaried employee earning less than this new amount becomes non-exempt and must receive overtime pay.

Updated Rules for Highly Compensated Employees (HCEs)

The Department of Labor also increased the threshold for highly compensated employees.

HCE Salary Levels

1. Current: $132,964 per year
2. January 1, 2025: $151,164 per year

To qualify as exempt under the HCE classification, an employee must:

1. meet the “highly compensated” salary requirement and
2. receive at least $844 per week on a salary or fee basis
3. meet minimal job duties requirements

Importantly, this base weekly amount cannot be satisfied using bonuses or incentive pay.

Why These Changes Matter

These new regulations significantly expand overtime protections across the workforce.

Employers should:

1. review employee classifications
2. audit salaries
3. adjust payroll systems
4. ensure compliance before the January 2025 threshold takes effect

Employees should understand whether the new rules make them newly eligible for overtime pay.

How Overtime Works

Overtime refers to any hours an employee works beyond the standard number of hours in a workweek. These extra hours must be paid at a higher rate than regular working hours.

For hourly employees, overtime pay means earning an increased rate once they exceed 40 hours in a week. Under federal law, employers must pay 1.5 times the employee’s regular hourly rate for every hour worked over the 40-hour limit.

For example, if a worker earns $10 per hour and works 45 hours, they receive:

1. $10/hour for the first 40 hours
2. $15/hour (time-and-a-half) for the 5 overtime hours

For salaried employees, overtime eligibility depends on their weekly earnings. Salaried workers are usually exempt from overtime, but only if they make above a specific salary threshold.

Under the updated rules effective July 1, 2024, any exempt employee who earns less than $844 per week must receive overtime pay. Employers may count non-discretionary bonuses, commissions, and incentive payments toward up to 10% of this required salary level.

Note

Employers are legally required to pay at least the federal minimum overtime rate, but they’re free to offer more generous compensation if they choose. Some companies voluntarily set higher overtime rates or begin paying overtime after fewer hours worked each week.

For example, many employers offer double time—twice an employee’s regular hourly wage—for working on holidays or special occasions.

It’s important to note that the Department of Labor does not mandate extra pay for working at night, on weekends, or on holidays. Any higher rates for these shifts are determined by company policy, employment agreements, or union contracts.

The Wage and Hour Division of the U.S. Department of Labor enforces overtime rules and other pay requirements under the Fair Labor Standards Act (FLSA). This federal law sets nationwide standards not only for overtime pay but also for minimum wage and child labor regulations.

Some U.S. states have their own labor laws that offer stronger worker protections than federal rules. When state and federal laws differ, employers must follow whichever regulation is more protective for the employee. To ensure compliance, employers should review their state’s labor department website or consult an employment attorney.

How to Calculate Overtime for Hourly Employees

Overtime pay refers to the extra compensation an hourly employee earns when they work more than 40 hours in a single workweek. The calculation is straightforward:

Overtime pay formula:

Regular hourly rate × 1.5 × Number of overtime hours

Below is a simple example of total weekly pay for an employee who worked 42 hours:

1. Regular pay: Regular rate × 40 hours
2. Overtime pay: Regular rate × 1.5 × 2 overtime hours
3. Total pay: Regular pay + overtime pay

Detailed Example

1. Employee works 50 hours in one week
2. Regular rate: $15 per hour

Step 1 — Regular pay:

40 hours × $15 = $600

Step 2 — Overtime pay:

10 overtime hours × ($15 × 1.5) = 10 × $22.50 = $225

Step 3 — Total earnings:

$600 + $225 = $825 for the week

Why Some Employees Are Exempt From Overtime

Some employees are classified as exempt from overtime because the nature of their job duties places them outside the standard overtime rules. To be considered exempt, an employee must perform specific types of higher-level responsibilities—not simply hold a certain job title.

Under the Fair Labor Standards Act (FLSA), the following categories may qualify as exempt:

1. Executive employees
2. Administrative employees
3. Professional employees
4. Outside sales employees
5. Certain computer employees

Each position must be evaluated individually. Job titles alone do not determine exemption—only the employee’s actual daily duties and responsibilities.

How to Calculate Overtime for Exempt Employees Who Now Qualify

As mentioned earlier, some lower-paid exempt employees may now be eligible for overtime under the updated federal rules. When this happens, employers must calculate overtime using the same formula applied to hourly workers.

To determine the overtime rate for a salaried employee, you can use one of two accepted methods:

Method 1: Convert Annual Salary Into an Hourly Rate

This method assumes a full-time schedule of 2,080 hours per year (52 weeks × 40 hours per week).

Example:

1. Annual salary: $31,000
2. Calculation: $31,000 ÷ 2,080 hours = $14.90 per hour

Once you determine the hourly rate, you apply the standard formula for overtime.

Method 2: Convert Weekly Salary Into an Hourly Rate

This method starts with the employee’s weekly pay and divides it by the number of hours they are expected to work during that week.

Example:

1. Weekly salary: $500
2. Expected weekly hours: 36
3. $500 ÷ 36 = $13.89 per hour

Example of Overtime Calculation for an Exempt Employee

If the employee works 45 hours in a week:

1. Regular pay:
2. 40 hours × $13.89 = $555.60
3. Overtime pay (time-and-a-half):
4. Overtime rate = $13.89 × 1.5 = $20.84
5. 5 overtime hours × $20.84 = $104.16

1. Total weekly pay:
2. $555.60 + $104.16 = $659.76

Overtime Recordkeeping Requirements

Under the Fair Labor Standards Act (FLSA), employers are legally required to maintain accurate and complete payroll records, including detailed documentation of all overtime hours worked and overtime pay issued. These records serve as proof that the employer is complying with federal wage-and-hour laws.

If the Department of Labor conducts an audit, the employer must be able to show clear, organized, and accurate records that demonstrate overtime was calculated and paid correctly according to FLSA guidelines. Proper documentation protects both the business and its employees and helps avoid penalties or legal issues.

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