How FLSA overtime pay works
The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees 1.5 times their regular rate for all hours worked over 40 in a seven-day workweek. The workweek does not have to be Monday–Friday; employers can define any seven consecutive days as their workweek, but it must be fixed and consistent.
Salaried non-exempt employees are entitled to overtime despite receiving a fixed salary. Under the "fluctuating workweek" method or the more common standard method, the employee's regular rate equals their weekly salary divided by total hours worked. The overtime premium is 0.5x (since the salary already covers straight-time pay for all hours). Note: salaried employees earning above $684/week in an executive, administrative, or professional role may be exempt from overtime entirely — check the DOL's duties test before classifying anyone as exempt.
California overtime is more generous than federal law. California employees earn 1.5x for hours over 8 in a day (not just over 40 in a week), and 2x for hours over 12 in a day. On the seventh consecutive day of work in a week, California requires 1.5x for the first 8 hours and 2x beyond that. For a full picture of what California overtime costs the employer — including the FICA match on overtime wages — the employer payroll tax calculator handles multi-employee total cost.
Overtime earnings are taxed at ordinary income rates — there's no special overtime tax rate. However, because overtime pushes annualized wages higher, a larger share of total income may cross into the next federal bracket. Run your gross overtime total through the payroll tax calculator to see the withholding. If you rely heavily on overtime hours, the difference in take-home pay as a 1099 contractor vs W-2 employee at the same gross rate can be significant — contractors pay self-employment tax on all earnings including overtime equivalents.
Heavy overtime seasons often mean employees exhaust their PTO balance trying to recover. Use the PTO accrual calculator to project balances if employees are using PTO around overtime weeks, or to calculate the cash value of unused PTO in states where it must be paid out at termination.