Overtime Pay and What Small Business Owners Need to Know

LAST UPDATED: June 29, 2022

Whether you’re a multinational corporation or a small mom-and-pop shop, virtually every business in America needs to shell out overtime pay at some point during the year. While there are a variety of reasons that require employers to offer this option, from being short-staffed to needing extra support, every workforce must abide by the same rules when it comes to federal and statewide regulations.

As such, it’s common for small business owners to get overwhelmed by the ins-and-outs of this critical factor. Don’t worry; we’re here to walk you through it. Keep on reading as we cover the basics of overtime pay and everything else you need to know as a small business owner.

General Rules for Overtime Pay

Generally, overtime rules apply anytime an employee works over 40 hours in a single workweek.

Though the Fair Labor Standards Act (FLSA) doesn’t limit the number of hours employees over the age of 16 can work weekly, small businesses need to grant overtime for anything over 40 hours. Overtime pay varies widely across the nation as it depends entirely on wages; however, it must be at least one and one-half times the employee’s standard hourly rate (also known as “time and a half”).

It is also important to clarify that holiday and weekend shifts aren’t subject to the same regulations — unless it means the employee ends up working over 40 hours. Otherwise, the pay rate is up to the employer.

How Overtime Pay Works

While the basic standards for time and a half pay are shared nationally, some states have added regulations that small businesses need to keep an eye on. Before we get into California’s unique rules, let’s cover additional specifics at the federal level.

Federal Overtime Pay

If your small business is covered by the FLSA, meaning you take in gross sales of $500,000 or more annually, you are required to pay overtime-eligible employees time and a half. Public agencies, hospitals, schools and other businesses may still be required to pay overtime even if they fail to meet the sales standard.

When looking at an employee’s eligibility for overtime pay, Non-exempt employees must be paid time and a half for any hours worked over 40 hours a week while exempt employees are not eligible for overtime pay. The following conditions qualify an employee as exempt:

  • Earns a salary rather than an hourly rate
  • The job duties are that of a professional role that require a higher level of expertise and knowledge (Executive, administrative, professional, computer related or outside sales)
  • Earns a minimum of $684 per week or $35,568 annually (as of January 1, 2020)

Now, you aren’t required to grant non-exempt employees with overtime pay. Since this classification varies by state, your business should contact its local Wage and Hour Division office to clarify whether or not it has exempt employees. However, since the FLSA does not cover contractors and independent contractors, they do not require time and a half pay.


The Golden State has a few additions when it comes to rules and regulations for overtime pay. While the 40-hour rule remains, small business owners need to know about the finer details included in California’s laws.

First, any non-exempt employee who works more than eight hours in a single workday must be paid overtime. If they work more than 12 hours on the same day, then they must be reimbursed with double pay.

Second, the number of days worked consecutively by an employee must be accounted for; if an employee clocks in for seven days straight, the first eight hours of their shift on the seventh day will require overtime pay. Anything over eight hours requires double pay.

How to Calculate Overtime

Calculations for overtime pay in California go as follows:

Daily Overtime

Example: A retail worker, earning $16 per hour, works 10 hours in one day. How much of those hours are regular hours and overtime hours? What is the total amount that needs to be paid for that day?

10 (total hours worked) - 8 (hours before overtime starts) = 2 (overtime hours)

$16 (Regular rate) x 1.5 = $24 (Overtime Rate)

8 (Regular hours) x $16 (Regular rate) = $128

2 (Overtime hours) x $24 (Overtime Rate) = $48

$48 + $128 = $176 (Total amount owed to employee)

Weekly Overtime

Example: An employee. Earning $15 per hour, works 50 hours in a week. How much of those hours are regular hours and overtime hours? What is the total amount that needs to be paid for that day?

50 (total hours worked) - 40 (hours before overtime starts) = 10 (overtime hours)

$15 (Regular rate) x 1.5 = $22.5 (Overtime Rate)

40 (Regular hours) x $15 = $600

10 (Overtime hours) x $22.5 (Overtime Rate) = $225

$600 + $225 = $825 (Total amount owed to employee)

Penalties for Not Paying Overtime or Paying It Incorrectly

Mistakes happen, but when it comes to paying your employees, they can be crushing — especially for small businesses.

If you fail to grant your employees the correct overtime pay or do so incorrectly you may be putting your business at risk of litigation with your employees, which are usually in favor of employees. With these violations, your business will not only be required to pay back the overtime owed to the employee but also violation fees that can amount to thousands of dollars. As such, it’s crucial to ensure you’ve taken the necessary steps to identify the exemption status of your employees and to calculate their time and a half rate accurately.

Get Help from An Expert

We know how stressful payroll can be for small businesses, especially in times like the present. That’s why we created Zeffry, an online payroll service that is tailored to help you and your workforce succeed no matter what challenges you might encounter. Offering assistance with everything involving overtime pay, Zeffry is the perfect tool to add to your business’s arsenal moving forward.