FLSA overtime violations are the #1 source of DOL wage and hour penalties for small businesses — over $300 million in back wages recovered annually. Most violations aren't deliberate. They come from misclassifying employees as exempt, misunderstanding what "hours worked" means, or not realizing a salary doesn't automatically mean overtime-exempt.

This guide covers the 2025 FLSA overtime rules in plain language — who's covered, who's exempt, and the common mistakes that trigger audits.

FLSA Overtime Basics

The Fair Labor Standards Act requires that non-exempt employees receive overtime pay of at least 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. Key points:

  • The workweek is any fixed, regularly recurring 168-hour period (7 consecutive 24-hour days)
  • Overtime is calculated per workweek — you cannot average two weeks together
  • The overtime rate is based on the "regular rate" — not just base wage (bonuses affect this)
  • State laws may provide greater protections (California requires daily overtime after 8 hours)
2025 Salary Thresholds (Updated): The DOL raised the salary threshold for exempt employees. As of 2025, employees must earn at least $684/week ($35,568/year) to be classified as exempt under the executive, administrative, or professional exemptions. Check the DOL website for any mid-year updates as litigation around these thresholds continues.

Who Is Exempt from Overtime?

Being "exempt" means not entitled to overtime pay. To qualify for the main white-collar exemptions, an employee must meet both a salary test AND a duties test:

The White-Collar Exemptions

Executive Exemption

Must: (1) earn $684+/week on a salary basis, (2) primary duty is management of the enterprise or a department, (3) customarily directs the work of 2+ employees, and (4) has authority to hire/fire or whose suggestions carry significant weight. A "manager" title alone is not enough.

Administrative Exemption

Must: (1) earn $684+/week on salary, (2) primary duty is office/non-manual work directly related to management or general business operations, and (3) primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Bookkeepers and clerical workers generally do NOT qualify.

Professional Exemption (Learned)

Must: (1) earn $684+/week on salary, (2) primary duty requires advanced knowledge in a field of science or learning, and (3) knowledge is customarily acquired by a prolonged course of specialized intellectual instruction. Applies to CPAs, lawyers, engineers, doctors, teachers.

Highly Compensated Employee (HCE)

Employees earning $107,432+/year total annual compensation (with at least $684/week on salary) are exempt if they customarily perform at least one duty of the executive, administrative, or professional exemption. Easier to qualify than the standard tests.

Outside Sales Exemption

No salary requirement. Employee must: (1) primarily be engaged in making sales or obtaining orders, and (2) customarily and regularly be away from the employer's place of business. Inside sales reps are NOT exempt under this test.

Common FLSA Overtime Mistakes

Mistake 1: "I pay them a salary, so no overtime"

A salary does NOT automatically create an overtime exemption. The employee must meet both the salary level AND the duties test. Many small businesses pay someone $40,000/year and call them exempt — but if their job duties don't qualify under one of the exemptions, they're still entitled to overtime.

Mistake 2: Misclassifying the duties test

The most commonly misapplied exemption is the administrative exemption. Many office jobs involve following procedures and supporting managers — that's not "discretion and independent judgment with respect to matters of significance." When in doubt, consult an employment attorney before classifying as exempt.

Mistake 3: Not counting all "hours worked"

Hours worked includes more than just scheduled shifts:

  • Time spent checking emails after hours on a regular basis
  • Time spent putting on protective equipment before a shift (in many circumstances)
  • Short rest breaks of 20 minutes or less (must be paid)
  • Time spent in mandatory meetings or training
  • Travel time between job sites during the workday

Meal breaks of 30+ minutes where the employee is completely relieved of duties do NOT count as hours worked.

Mistake 4: Averaging overtime across weeks

If an employee works 50 hours one week and 30 the next, you owe 10 hours of overtime for week one — even if the two-week total is 80 hours. Overtime is always calculated per workweek. No exceptions.

Mistake 5: "Comp time" instead of overtime pay

Private employers generally cannot give employees compensatory time off instead of overtime pay. "We'll give you Friday off for the extra hours you worked Monday" is not FLSA-compliant for non-exempt employees. Only government employers can use comp time arrangements.

Recordkeeping Requirements

Employers must keep accurate records of hours worked by all non-exempt employees for at least 3 years. Required records include:

  • Employee's full name and Social Security number
  • Address, including zip code
  • Birthdate, if under 19
  • Sex and occupation
  • Time and day of week when employee's workweek begins
  • Hours worked each day and total hours worked each workweek
  • Basis on which employee's wages are paid
  • Regular hourly pay rate
  • Total daily or weekly straight-time earnings
  • Total overtime earnings for the workweek
Track time accurately with Homebase: Homebase automatically calculates overtime and alerts you when employees approach the 40-hour threshold — before you owe overtime, not after.