Overtime Pay Rules: Exempt, Non-Exempt, and the Regular Rate

"You're salaried, so you don't get overtime" is the most expensive sentence in American employment, and about a third of the time it isn't true. Salary is one of three tests. Fail any of the other two and you're owed time and a half for every hour past 40, no matter what your offer letter says or how many people call you a manager.

Here's how the federal rule actually works, what your employer has to prove to keep you off it, and where the arithmetic quietly goes wrong even for people who do get paid overtime.

Exempt is a status you have to earn, not a box HR ticks

Under the Fair Labor Standards Act, an employee is covered by overtime rules — "non-exempt" — unless the employer can show the job fits a specific exemption. The common ones are the executive, administrative and professional exemptions, and each requires three things at once:

1. The salary level test. Under 29 CFR 541.600, the salary must be at least $684 per week, which annualizes to $35,568. Lower figures apply in some U.S. territories — $455 a week in Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands, and $380 in American Samoa. Certain computer employees can instead be paid hourly at not less than $27.63 an hour.
2. The salary basis test. Under 29 CFR 541.602, you must receive a predetermined amount each pay period "not subject to reduction because of variations in the quality or quantity of the work performed," and you must receive the full salary for any week in which you perform any work at all.
3. The duties test. This is the one that actually decides most cases, and it has nothing to do with your title.

The administrative test at 29 CFR 541.200 is a good example of how demanding it is. Your primary duty has to be "office or non-manual work directly related to the management or general business operations of the employer or the employer's customers," and it must include "the exercise of discretion and independent judgment with respect to matters of significance." Processing forms according to a manual isn't that. Following a script isn't that. Deciding things is that.

There's also a shortcut exemption for very high earners: 29 CFR 541.601 treats an employee with total annual compensation of at least $107,432 as exempt if at least $684 a week is paid on a salary or fee basis and the employee "customarily and regularly performs any one or more of the exempt duties" of an executive, administrative or professional employee. Below that compensation level, the full duties analysis applies.

One current wrinkle worth knowing: the Labor Department raised the salary threshold in 2024, a federal court in Texas vacated that rule in November 2024, and the department formally restored the prior figures to the regulations in May 2026. The $684 number in the regulation today is the result of that round trip. Because this area has moved repeatedly, check the current text of 29 CFR 541.600 rather than a figure you remember.

The regular rate is not your hourly rate

Overtime is "not less than one and one-half times the regular rate at which the employee is actually employed," per 29 CFR 778.107. And the regular rate has a specific definition at 29 CFR 778.109: total remuneration for the workweek, minus a short list of statutory exclusions, divided by the total hours actually worked that week.

Total remuneration. Not base pay. Nondiscretionary bonuses — production bonuses, attendance bonuses, anything promised in advance or expected — go into the regular rate under 29 CFR 778.208. Truly discretionary bonuses, gifts on special occasions, and certain benefit-plan contributions can be left out.

Watch what that does. Take a non-exempt worker at $20 an hour who works 46 hours in a week and earns a $200 production bonus for that week.

• The way many payroll systems do it: 40 hours at $20 = $800, 6 overtime hours at $30 = $180, plus the $200 bonus = $1,180.
• The way the regulation requires: total remuneration is 46 × $20 = $920, plus $200 = $1,120. Regular rate is $1,120 ÷ 46 = $24.35. The overtime premium owed is the extra half-time on 6 hours: 0.5 × $24.35 × 6 = $73.04. Total due is $1,120 + $73.04 = $1,193.04.

The difference is $13.04 — for one week. Repeat it weekly and it's about $678 a year, in a paycheck nobody will ever audit. This is not exotic; it's one of the most common wage errors there is, and it usually comes from a payroll setting rather than malice.

Federal overtime is measured per workweek, over 40 hours. There is no federal daily overtime, and an employer can legally schedule you 12 hours Monday and send you home Friday without owing a premium. Several states go further. California, for instance, requires time and a half over eight hours in a workday and double time over twelve, plus premium rates on the seventh consecutive day in a workweek — and California is explicit that an employee cannot agree to waive it.

Where misclassification actually shows up

• The assistant manager who spends 80% of the shift on the register or the line. Supervising two people occasionally does not make management your primary duty.
• "Coordinator" and "specialist" roles that execute a defined process. High skill and no discretion over matters of significance is a non-exempt combination.
• IT help desk and desktop support staff classified under the computer employee exemption. Installing, configuring and troubleshooting to a runbook generally is not the systems analysis and design work the exemption describes.
• Anyone paid a day rate, a flat weekly amount for whatever hours the week demands, or "salary" that gets docked when they leave early. That last one can break the salary basis test outright, since the amount is supposed to be predetermined and not reduced for variations in quantity of work.
• Inside salespeople paid on commission. The outside sales exemption requires being customarily and regularly engaged away from the employer's place of business. A phone at a desk is not away.
• Comp time instead of overtime. Private-sector employers generally cannot swap paid time off for overtime pay; that arrangement exists for public agencies under specific rules.

Two things that don't decide anything: getting a W-2 rather than an hourly time card, and having agreed to it. You can't consent your way out of the FLSA. If you signed something in onboarding saying you waive overtime, that document is worth roughly what the paper cost.

If you think the math is wrong

1. Reconstruct one full pay period from your own records first — your calendar, badge swipes, sent-mail timestamps, the shift app. Have your own count of hours before you make a claim about theirs.
2. Do the regular-rate calculation above for a week that included any bonus, shift differential, or second pay rate. Weighted-average errors and bonus-exclusion errors are where most of the money hides.
3. Email payroll with the specific week, the specific figures, and the number you believe is correct. Writing creates a record and a date.
4. If it isn't fixed, your state labor agency takes wage claims for free and doesn't require a lawyer. The federal Wage and Hour Division handles FLSA complaints. Filing with one doesn't automatically preserve every deadline with the other, so ask which claims each covers.
5. Watch the clock. Under 29 U.S.C. 255, an FLSA action must generally start within two years of when the cause of action accrued, or three years for a willful violation. Every month you wait, the oldest week falls off the back end.

What you can recover is set by 29 U.S.C. 216(b): the unpaid overtime, plus "an additional equal amount as liquidated damages," plus a reasonable attorney's fee and costs paid by the employer. That fee-shifting provision is why employment lawyers will take a solid unpaid-overtime case without asking you for money up front, and it's worth a free consultation before you conclude the amount is too small to bother with.

One thing not to do

Don't quietly start refusing to work past 40 hours while you build the case. It looks like performance failure, it gives the employer a clean reason to act, and it reduces the hours you're owed for. Keep working, keep records, and raise the issue in writing. If your employer retaliates for raising it, that's a separate violation with its own remedies — and it's the part employers most often get caught on.

Start tonight with the boring step: open a note on your phone and write down what time you actually started and stopped today. Do it for two weeks. Almost nobody has this record when they need it, and it's the difference between a claim and a feeling.