A guide to creating a written overtime policy for US employers: federal and state overtime basics, who is eligible, pre-approval rules, mandatory overtime, unauthorized overtime, how hours are counted, distribution of overtime, recordkeeping, sample policy wording and common mistakes.
Without a policy, overtime decisions are made shift by shift, often inconsistently. That leads to surprise labor costs, complaints that some employees get all the extra hours and, worst of all, unpaid overtime claims. A written policy sets clear expectations for employees and managers and shows that your practices are deliberate.
More detail is in the FLSA overtime rules guide and the how to calculate overtime pay guide.
States can be stricter, and your policy must follow whichever rule gives the employee more. California requires daily overtime after 8 hours and double time after 12 hours in a day, plus rules for the seventh consecutive day. A few other states have daily overtime rules as well. Some states also limit mandatory overtime for nurses and certain healthcare workers. See daily overtime rules for an overview, and check your state labor agency.
Your policy should state that non-exempt employees are eligible for overtime and that exempt employees are not. Exempt status depends on salary level and actual job duties, not job title. Misclassifying employees as exempt is one of the most common and costly wage and hour mistakes. If you are not sure, see the overtime glossary entry and consult an advisor.
Most employers require non-exempt employees to get a manager’s approval before working overtime. That is legal and wise for controlling costs. What is not legal is refusing to pay for overtime that was worked without approval. If the employer knew or should have known the work was done, it must be paid.
The policy can say that working unapproved overtime is a policy violation that may lead to discipline, but it must also say clearly that all hours worked will be paid. An overtime authorization form makes approvals simple to document.
Under federal law, employers can generally require adult non-exempt employees to work overtime, as long as it is paid correctly. Some states restrict mandatory overtime in healthcare, and union contracts may set limits. If you may require overtime, say so in the policy, explain how much notice you will try to give and how you will decide who works it. Employees who refuse required overtime may face discipline under your policy, subject to any legal protections such as protected leave or accommodations.
Unfair distribution of overtime causes resentment both ways: some employees want extra hours for the pay, while others want predictable schedules. State a clear method:
| Method | How it works | Watch out for |
|---|---|---|
| Volunteer list | Employees sign up; overtime offered in rotation | Keeping the list current |
| Seniority | Offered by seniority first | Newer employees may feel shut out |
| Rotation | Overtime offered in turn, tracked on a log | Requires good records |
| Skills-based | Offered to qualified employees for the task | Can concentrate hours on a few people |
| Reverse order for mandatory overtime | Least senior required first when no volunteers | Fatigue and fairness |
| Situation | Counts toward 40? |
|---|---|
| Short rest breaks (typically 5 to 20 minutes) | Yes |
| Bona fide meal period, fully relieved | No |
| Required training and meetings | Yes |
| Travel between job sites during the day | Yes |
| Normal commute to and from work | Generally no |
| Paid holidays, vacation and sick time not worked | No under federal law, unless your policy counts them |
| On-call time where the employee is restricted | Often yes; depends on the restrictions |
Overtime is not only a cost issue. Long weeks and back-to-back shifts raise the risk of fatigue, mistakes and injuries, and chronic overtime is a common driver of burnout and turnover. Consider setting internal limits, such as a maximum number of consecutive days or hours per week except in emergencies, and a minimum rest period between shifts. Track who is working the most overtime and check in with them. Rotating voluntary overtime also keeps the extra hours, and the fatigue that comes with them, from landing on the same few people every week. See the employee burnout guide.
Employers must keep accurate records of hours worked each day and each workweek for non-exempt employees, along with pay rates and overtime paid. Records must be kept for at least the period required by federal and state law. See time record retention requirements. Your policy should require employees to record all time accurately and prohibit editing anyone else’s time without a documented correction process.
The following is a starting point to adapt with legal review, not a finished policy.
Overtime Policy. Non-exempt employees will be paid overtime at one and one-half times their regular rate of pay for all hours worked over 40 in a workweek, and as otherwise required by state law. The company workweek begins Sunday at 12:00 a.m. and ends Saturday at 11:59 p.m. Overtime must be approved in advance by your supervisor. Employees will be paid for all overtime hours worked, whether or not approved; however, working unapproved overtime may result in disciplinary action. Employees may not work off the clock for any reason. The company may require overtime based on business needs and will try to provide reasonable notice. Voluntary overtime will be offered on a rotating basis to qualified employees. Exempt employees are not eligible for overtime pay. Questions about this policy should be directed to your manager or HR.
More ideas are in how to reduce overtime costs.
EZTime helps you apply an overtime policy consistently. Labor rule alerts flag weekly hour limits and overtime thresholds before they are crossed, and the schedule is linked to the clock so you can block early clock-ins or clock-ins outside assigned shifts. Timecard corrections use manager approval with an audit trail, real-time labor costing shows the effect on cost, and payroll-ready reports export to PDF and Excel. EZTime does not process payroll itself.
Under federal law, generally yes for adult non-exempt employees, if it is paid correctly. Some states limit mandatory overtime for certain healthcare workers, and union contracts may set limits.
Yes. If the employee worked it and you knew or should have known, you must pay it. You can address the policy violation separately through discipline.
Federal overtime is weekly, over 40 hours. Some states, notably California, also require daily overtime.
Private employers generally cannot replace overtime pay with comp time for non-exempt employees. Public employers have different rules.
Under federal law, paid time off that is not worked does not count toward the 40 hours, unless your policy or a contract says it does.
EZTime alerts managers before employees cross overtime thresholds and keeps an audit trail of every timecard change.