This lesson is general education about U.S. personal finance, not financial, tax or investment advice. Tax rules and limits change every year; check IRS.gov or a qualified professional for your situation.
What you’ll learn
- Hourly nonexempt jobs must pay 1.5 times the regular rate for hours over 40 in a workweek; exempt salaried jobs earn no federal overtime premium.
- The white-collar exemptions require a salary basis, at least $684 per week ($35,568 a year), and duties that fit an exemption category; job titles alone decide nothing.
- At $35,568 a year, salary pays $684 every week, while $17.10 an hour pays $812.25 in a 45-hour week, so your expected hours drive which type pays more.
- For tax years 2025 through 2028, qualified overtime pay earns a federal deduction for the half portion of time-and-a-half, reported on your W-2.
- Salary basis rules limit deductions: no docking pay for slow business, weather closures or jury duty, though some full-day and FMLA absences can be deducted.
A job offer leads with one number: an annual salary or an hourly rate. That label does more work than it first appears to. It helps decide whether extra hours earn extra money, how predictable each deposit is, and which federal pay rules cover you. The comparison below runs the same annual income through both pay types so you can see where they match and where they split.
What Salaried and Hourly Actually Mean
Hourly pay is what it sounds like: you earn a set rate for each hour on the clock, and your employer tracks those hours. Salaried pay means you regularly receive a set amount for each pay period, whether that period runs weekly or stretches out longer, rather than a rate tied to the hours you happened to work.
Federal law sets a floor under both. The Fair Labor Standards Act (FLSA) requires covered employees to earn a wage that meets the federal floor of $7.25 per hour, a figure in place since July 24, 2009. Many states set their own minimums, and when both state and federal laws apply, you are entitled to the higher of the two.
The bigger difference shows up after 40 hours. Covered nonexempt employees must receive overtime pay at one and one-half times their regular rate for hours worked beyond 40 in a workweek. Whether that rule reaches you depends on how your job is classified, which is where the two pay types really split.
Side by Side: The Same Annual Pay Two Ways
Take a job that pays $35,568 a year. On salary, that is $684 a week, which happens to be the federal salary threshold for the most common white-collar overtime exemptions. As an hourly rate, the same income works out to $17.10 an hour at 40 hours a week, or $684.
| Salaried at $35,568 | Hourly at $17.10 | |
|---|---|---|
| How pay is figured | $684 each pay period, set in advance | A rate for each hour actually worked |
| A 45-hour week pays | $684, the same as a 35-hour week | $812.25 (40 hours plus 5 at $25.65) |
| Overtime after 40 hours | None required if the job is exempt | Required at 1.5 times the regular rate |
| Hours tracked by employer | Not required for an exempt role | Yes, time and pay records required |
| Paycheck predictability | High; the amount does not vary with hours | Varies week to week with hours worked |
Each type suits a different situation. Salary tends to suit people who want a deposit they can plan around and who expect their weekly hours to swing up and down without extra pay in either direction. Hourly pay tends to suit people whose schedules vary, who want their time on the record, and who expect to work more than 40 hours often enough for the overtime premium to matter. Neither is universally better; the math depends on how many hours you actually work. If you are weighing a specific offer right now, our benefits checklist pairs well with this comparison.
Overtime: Who Gets Time-and-a-Half Under FLSA Rules
The FLSA overtime rule is built around the workweek, not the pay period. A workweek is a set, repeating stretch of 168 hours, meaning seven straight 24-hour periods, and it can start on whatever day and at whatever hour your employer picks. Hours cannot be averaged across two or more weeks, so 30 hours one week and 50 the next means overtime only in the second week. Overtime earned in a particular workweek must normally be paid on the regular payday for the pay period in which it was earned.
A few limits people expect are not in the law. There is no cap on how many hours employees 16 or older may work in a week, and the FLSA does not require overtime pay just because you worked a Saturday, Sunday or holiday, unless those hours themselves push you past 40. Some states add their own overtime rules; check with your state labor agency.
Run the numbers on the hourly example: at $17.10 an hour, the overtime rate is $25.65, so five extra hours add $128.25 to gross pay for the week. On your paycheck, overtime usually appears as its own earnings line, separate from regular hours. Our guide to reading your pay stub, line by line shows where to find it.
Exempt and Nonexempt Jobs, in Plain Terms
Not every salaried worker loses overtime. The FLSA carves out exemptions for certain executive, administrative, professional and outside sales employees, plus some computer employees, often called the white-collar exemptions. To qualify, a job generally has to pass all three tests:
- Salary basis. Pay arrives as a set amount each pay period, and the employer cannot shrink it when the quality or volume of the work changes.
- Salary level. At least $684 per week. Exempt computer employees can instead be paid at least $27.63 an hour.
- Duties. The actual job duties must fit an exemption category. The executive exemption, for example, requires that the employee’s primary duty be managing the enterprise or a recognized department, that the employee customarily direct the work of at least two other full-time employees or their equivalent, and that the employee have real authority over hiring and firing, or recommendations on those decisions that carry particular weight.
Job titles do not determine exempt status. A “manager” who mostly runs a register does not become exempt through the word on the business card. The Department of Labor reads these exemptions narrowly, and the burden of proving an exemption applies rests on the employer. Exemptions are also assessed week by week, so an employee who spends a workweek on mostly nonexempt duties is generally not exempt that week.
What the Salary Basis Rule Protects
Worth knowing
Deductions from an exempt salary are tightly limited. An employer generally may not dock pay because business was slow, the office closed for bad weather, or the employee served on jury duty. Isolated or inadvertent improper deductions can be corrected if the employer reimburses the affected pay.
Being paid on a salary basis carries a specific protection: if you perform any work in a week, you receive the full salary for that week, whether it took 20 hours or 60. And if work runs out but you are on hand and prepared to do it, your pay for that stretch cannot be cut.
The rules do allow certain deductions: absences of one or more full days for sickness or disability under a bona fide plan, offsets for jury or witness fees or temporary military duty pay, good-faith penalties for serious safety infractions, and unpaid leave taken under the Family and Medical Leave Act. Partial-day deductions generally violate the salary basis rule, with narrow exceptions. If you are absent for one and a half days for personal reasons, your employer may deduct only for the one full day.
How Withholding Treats Overtime and Bonuses
Overtime hours, bonuses and commissions are all wages, so they flow through the same federal income tax withholding that your Form W-4 drives. A bigger gross amount in a week usually means more tax withheld that week, but withholding is only a prepayment. The actual tax is settled when you file your return, which is why a bonus week can look overwithheld and then even out. If your withholding never seems to match reality, our guide to filling out a W-4 without guessing covers how to adjust it.
Federal law added a wrinkle for hourly workers. The One, Big, Beautiful Bill Act created a deduction for qualified overtime compensation, available for tax years 2025 through 2028. Qualified overtime is generally the “half” portion of time-and-a-half pay that the FLSA requires and that appears on your Form W-2. Because the deduction applies only to overtime required under the FLSA, exempt salaried employees, who receive no FLSA overtime, have nothing to claim under it. The IRS has been updating income tax forms and instructions to help workers claim it.
When a Salaried Job Requires Extra Hours
For an exempt salaried employee, federal law requires no additional pay for extra hours. The salary is the same in a 40-hour week and a 55-hour week, and no comp time is owed under the FLSA either. That is the trade for the other side of the salary basis rule: your pay also cannot be cut when the workload is light.
The way to evaluate an exempt offer is to divide honestly. A $684 weekly salary works out to $17.10 an hour at 40 hours, but $13.68 an hour if the job actually runs 50. Ask people in the role, or ask the interviewer directly, what a typical week looks like during busy periods. An exempt title with steady 60-hour weeks may pay less per hour than a nonexempt job down the street, overtime included.
Questions to Ask Before You Accept Either Pay Type
Pay type is a fair topic during the offer stage, and the answers belong in writing next to the salary figure.
- Am I exempt or nonexempt, and under which duties test? Ask which exemption category the employer applies and what duties it is based on, then compare the answer against the Department of Labor’s fact sheets.
- When does the workweek start? A Sunday start versus a Wednesday start changes which week a long stretch of shifts lands in, and therefore when overtime is owed.
- How are hours recorded and overtime approved? For nonexempt roles, ask whether overtime needs pre-approval and whether off-the-clock work is expected. Employers covered by the FLSA must keep time and pay records and display an official poster of the law’s requirements.
- How does variable pay fit in? For exempt roles, ask how much of the $684 weekly minimum can come from nondiscretionary bonuses or commissions; the rules allow up to 10 percent.
- What counts as full-time for benefits? Pay type and benefits eligibility are separate questions. For employer health plan purposes under the monthly measurement method, the IRS counts 130 hours of service in a month as full time.
Bring the pay-type questions to the same conversation as the salary and benefits questions, and get the exempt or nonexempt designation in the offer letter itself.
Common questions
Do salaried employees always miss out on overtime?
No. Only employees who meet all three exemption tests, the salary basis, the $684 weekly minimum and qualifying duties, are exempt. A salaried worker whose duties do not fit an exemption is generally nonexempt and owed overtime.
Is overtime figured per paycheck or per week?
Per workweek. A workweek is a fixed 168-hour period that can start on any day and at any hour, and hours cannot be averaged over two or more weeks.
Can my employer deduct from my salary for a snow day?
Generally no. If you performed any work that week, the salary basis rule requires your full salary, and deductions because the business closed are listed as improper.
Does working a holiday automatically earn overtime?
Not under federal law. The FLSA requires overtime only when total hours pass 40 in a workweek, though a state rule or your employer’s policy may add a premium.