The term overtime pay refers to the hourly rate paid when an employee works in excess of forty hours in a week or on a regular day off. Under the Fair Labor Standards Act, corporations are required to pay certain employees a rate of pay that is at least 1.5 times their standard hourly wage.
Under federal law, companies are required to pay employees covered by the Fair Labor Standards Act (FLSA) not less than 1.5 times their hourly rate when they work in excess of forty hours in a seven day workweek. The FLSA does not require companies to pay overtime when a covered employee works on a Saturday, Sunday, holiday, or regular day off (RDO).
Paying employees a higher rate of pay is thought to provide corporations with a financial disincentive to overwork their employees. An agreement to pay overtime under a variety of conditions can also result from negotiations with a collective bargaining unit such as a trade union. Typical agreements that are not required by the FLSA, but may be negotiated, include:
Corporate policies may also provide for overtime payment to FLSA-exempt employees, which are normally classified as "salaried" individuals. Typically, mid-level and executive management positions are never paid overtime for hours worked outside of their normal workweek.
Individual states may also have regulations requiring the payment of overtime to employees under certain conditions. If a state's requirements are more "generous" than federal requirements, the state's guidelines must be followed. For example, California Labor Code requires the payment of double time when an hourly employee works in excess of 12 hours in one day or in excess of eight hours on any seventh day of a workweek. Exceptions include employees that work an alternative workweek and the time spent commuting.