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FLSA Overtime Rules for Small Businesses
FLSA enterprise coverage applies once a business does $500,000 or more in annual sales; below that, employees doing interstate work are still covered individually. Overtime is 1.5 times the regular rate for hours over 40 in a workweek, and a fixed salary does not erase it. BEG calculates that weighted-average rate and pays it at $45 per employee monthly.
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Does the FLSA even apply to a small business?
Before any exemption question matters, coverage has to apply in the first place. Enterprise coverage kicks in once a business does $500,000 or more in annual sales or business done. Below that figure, the business itself may not be covered as an enterprise, but individual employees can still be covered if their own work regularly involves interstate commerce: calling other states, handling interstate records, or producing goods that get shipped out of state. A small local business under the revenue threshold is not automatically exempt from the FLSA just because of its size.
The arithmetic small employers get wrong
A fixed weekly salary does not make overtime disappear, even when the employer intended it to cover a longer week. DOL's own worked example makes the point directly: a $405 salary intended to cover a 45-hour week produces a $9.00 regular rate of pay, and the employer still owes half-time pay on the 5 hours over 40. Overtime is time and one-half the regular rate for hours over 40 in a workweek, a fixed, recurring 168-hour period that can start on any day and hour the employer sets, and hours cannot be averaged across two or more weeks to make the overtime disappear. It is also worth stating plainly what is not required: no overtime is owed for weekend or holiday work as such, only for hours actually worked past 40.
The white-collar exemption test
Executive, administrative, and professional employees can be exempt from overtime, but only if they are paid on a salary basis of at least $684 a week and meet the applicable duties test. Nondiscretionary bonuses and commissions paid at least annually can satisfy up to 10 percent of that salary level. Two other thresholds sit alongside the standard test: the highly compensated employee threshold is $107,432 a year, and computer employees can instead qualify on an hourly basis of at least $27.63 an hour.
Job titles do not decide exempt status, and one category is never exempt under Part 541 regardless of pay: blue-collar workers, including carpenters, electricians, mechanics, and construction or production workers, stay overtime-eligible no matter how much they earn.
When an employee works two different pay rates in one week
A worker paid two different rates within the same workweek gets a weighted-average regular rate calculated across both, not the higher or lower rate alone. A flat sum paid for the overtime hours, rather than a rate-based half-time calculation, does not satisfy the overtime premium requirement even if the total dollar amount happens to come close.
What BEG calculates, and what stays a client decision
BEG applies the client's workweek definition, calculates overtime at the weighted-average regular rate including nondiscretionary bonuses, and pays it on the regular payday inside the client's system. Deciding who is exempt, setting the workweek, and any state daily-overtime rule are the client's calls with its counsel; state daily-overtime rules are covered on our overtime laws by state page rather than repeated here. BEG will flag a salaried employee coded exempt below $684 a week.
Full BEG managed payroll runs this overtime calculation automatically every pay period.
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Frequently Asked Questions
Does the FLSA apply to a small business under $500,000 in revenue?
Enterprise coverage kicks in at $500,000 or more in annual sales or business done. Below that figure, individual employees can still be covered if their work regularly involves interstate commerce, such as calling other states, handling interstate records, or producing goods that ship out of state.
How is overtime actually calculated?
Time and one-half the regular rate for hours over 40 in a workweek. A workweek is a fixed, recurring period of 168 hours that can start on any day and at any hour the employer sets, and hours cannot be averaged across two or more weeks to avoid paying overtime.
Does a fixed salary for a 45-hour week cover overtime automatically?
No, and this is the most common small-business mistake. DOL’s own example: a $405 salary for 45 hours works out to a $9.00 regular rate, and the employer still owes half-time pay on the 5 overtime hours. No overtime is owed for weekend or holiday work as such, only for hours actually worked past 40.
What salary threshold applies to the white-collar exemption?
Executive, administrative, and professional employees must be paid at least $684 a week on a salary basis and meet the applicable duties test. Nondiscretionary bonuses and commissions paid at least annually can satisfy up to 10 percent of that salary level.
Are there different thresholds for highly compensated or computer employees?
Yes. The highly compensated employee threshold is $107,432 a year, and computer employees can instead be paid on an hourly basis of at least $27.63 an hour and still qualify for the exemption.
Can a job title make an employee exempt from overtime?
No. Job titles do not determine exempt status. Blue-collar workers, including carpenters, electricians, mechanics, and construction or production workers, are never exempt under Part 541 no matter how much they are paid.
How is overtime calculated when an employee is paid two different rates in one week?
The employee gets a weighted-average regular rate calculated across both rates for that week. A flat dollar amount paid for the overtime hours, instead of a rate-based calculation, does not count as a valid overtime premium.
Does BEG decide which employees are exempt from overtime?
No. Deciding who is exempt, setting the workweek definition, and any state daily-overtime rule are the client’s calls with its counsel. State daily-overtime thresholds are covered separately on our overtime-laws-by-state page, not repeated here.
What does BEG handle on overtime pay?
BEG applies the client's workweek definition, calculates overtime at the weighted-average regular rate including nondiscretionary bonuses, and pays it on the regular payday inside the client's system, all inside standard managed payroll at $45 per employee monthly. BEG will flag a salaried employee coded exempt below $684 a week.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Sources: DOL Fact Sheet #14, FLSA Coverage; DOL Fact Sheet #23, Overtime Pay; DOL Fact Sheet #17A, Overtime Exemptions. This is general compliance information, not legal advice.
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