Building Your Business Business Taxes Overtime Rules for Exempt and Non-Exempt Employees What are the rules for paying workers overtime? By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 13, 2022 Fact checked by Hilarey Gould Fact checked by Hilarey Gould Twitter Website Hilarey Gould has spent 10+ years in the digital media space, where she's developed a passion for helping people understand economics, saving, investing, credit card perks, mortgage rates, and more. Hilarey is the editorial director for The Balance and has held full-time and freelance roles at a variety of financial media companies including realtor.com, Bankrate, and SmartAsset. She has a master's in journalism from the University of Missouri, and a bachelor's in journalism and professional writing from The College of New Jersey (TCNJ). learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article Overtime for Exempt Employees What Makes an Employee Exempt or Non-Exempt? What Types of Employees Are Exempt? When Must Exempt Employees Receive Overtime? How Does Overtime Work for Highly Compensated Employees? What About Comp Time Instead? Using Bonuses or Catch-up Payments Do You Need To Track Time for Exempt Employees? Frequently Asked Questions (FAQs) Photo: Hero Images / Getty Images The Department of Labor (DOL) has rules for when employers must pay overtime to employees. The DOL assumes every worker must receive overtime pay if they work over 40 hours in a week, at a rate equal to 1.5 times their hourly rate (at a minimum). But some employees, because of the nature of their work, are considered to be "exempt" from overtime pay. It used to be that the terms "exempt" and "non-exempt" were clearly defined. But the DOL has more rules to protect lower-paid exempt employees from falling below the minimum wage, by requiring that they must be paid overtime. Key Takeaways Overtime pay is required for certain employees when they work over 40 hours in a week.It's equal to 1.5 times their hourly pay rate.Effective Jan. 1, 2020, the Department of Labor (DOL) increased the minimum weekly pay for exempt employees, making more people eligible for overtime pay.Exempt employees who make less than $684 a week (or $35,568 a year) must receive overtime pay.Non-exempt employees are already paid overtime if they work at least 40 hours per week. Overtime for Exempt Employees In 2019, the U.S. Department of Labor issued new regulations around pay for exempt employees that make more employees eligible for overtime pay. Under the new rules that went into effect Jan. 1, 2020, employees who make less than $684 a week (or $35,568 a year) must receive overtime pay, even if they have been classified as "exempt." In addition, highly compensated employees must be paid overtime if they are paid less than $107,432 a year. This rule has little effect on non-exempt (hourly) employees because they are already paid overtime if they work at least 40 hours per week. What Makes an Employee Exempt or Non-Exempt? The terms "exempt" and "non-exempt" refer to job classifications of employees and the exemption of certain job classifications from overtime pay and minimum wage requirements. The Fair Labor Standards Act, administered by the Wage and Hour Division of the U.S. Department of Labor, requires that all U.S. employees be paid at least minimum wage and receive overtime at 1.5 times the hourly rate for work performed in excess of 40 hours during a work week. Employees who have certain types of jobs and who are paid certain minimum salaries are considered exempt from receiving overtime pay. What Types of Employees Are Exempt? The Fair Labor Standards Act (FLSA) states that employees employed as "bona fide executive, administrative, professional and outside sales employees" and "certain computer employees" may be considered exempt from both minimum wage and overtime pay. These are sometimes called "white collar" exemptions. Being exempt from overtime includes: Being paid a salaryBeing in a "white collar" positionBeing paid more than the minimum weekly salary, as explained below The DOL also has specific types of employees who are considered to be exempt from both minimum wage requirements and overtime requirements and other types of employees who are exempt from overtime requirements only. When Must Exempt Employees Receive Overtime? The U.S. Department of Labor requires that employees whose salary is equal to or less than $684 a week ($35,568 annually) must receive overtime, even if they are classified as exempt. This went into effect on Jan. 1, 2020. Before that, the rate was $455 a week. Note Exempt employees must be paid for any week in which they do any work; they don't have to be paid for a week in which they didn't work. How Does Overtime Work for Highly Compensated Employees? Employers don't have to pay overtime to employees who are considered "highly compensated." A highly compensated employee (HCE) is considered exempt by the Department of Labor if: The employee earns at least $107,432 per year, including at least $684 a week, paid on a salary or fee basisThe employee's primary duty includes performing office or non-manual workThe employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee In other words, employees whose annual pay is less than this amount must receive overtime. Employers can use commissions, nondiscretionary bonuses, and other nondiscretionary compensation to make up for the HCE designation. What About Comp Time Instead? Many employers give exempt employees "comp time" or time off, in lieu of pay for extra time worked or travel time, For example, if an exempt employee must work a trade show over the weekend, the employer would give time off instead of paying overtime. Note Non-exempt employees can't receive comp time because, under FLSA regulations, they must be paid at least minimum wage for all hours worked. Some state and local government employees may be eligible for comp time under certain conditions. You might also check with your state's labor department to see if they have different comp time regulations. Using Bonuses or Catch-up Payments To Get an Exempt Employee Above the Minimum You can use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary requirement. To qualify as non-discretionary, the bonuses must be tied to some measures like productivity, sales, or profitability. The bonuses must also be paid at least quarterly, not just at the end of the year. You can also make catch-up payments toward the previous quarter's salary. Do You Need To Track Time for Exempt Employees? No, you won't have to set up time clocks for your executives, but you will have to keep records to make sure these employees are making more than the minimum. You can choose how to keep those records as long as they meet FLSA requirements. The DOL regulations don't specifically state that records must be kept for exempt employees, but if you have exempt employees whose weekly pay is close to the overtime cutoff ($684 per week), you might want to have those employees complete a timesheet. Frequently Asked Questions (FAQs) How much is overtime pay? Overtime pay is equal to 1.5 times a worker's hourly rate of pay. It applies to hours worked over 40 hours per week. Who is exempt from overtime pay? Employees considered to be "bona fide executive, administrative, professional and outside sales employees," some computer employees, and some employees who are paid a salary equal to no less than $684 per week may be exempt from overtime pay. However, employees may be exempt from overtime on a case-by-case basis, depending on their job duties and the company for which they work. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Department of Labor. "Overtime Pay." U.S. Department of Labor. "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees." U.S. Department of Labor. "Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)." Washington State Department of Labor & Industries. "Understanding the Differences Between Exempt and Nonexempt Salaried Employees." U.S. Department of Labor. "Fact Sheet #17H: Highly Compensated Employees and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA)." U.S. Department of Labor. "Fact Sheet #7: State and Local Governments Under the Fair Labor Standards Act (FLSA)." U.S. Department of Labor. "Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA)." Accessed Nov 8, 2019. U.S. Department of Labor. "elaws Advisors: Fair Labor Standards Act Advisor."