How should overtime pay be handled on payroll?

Handling Overtime Pay on Payroll in Texas

In Texas, managing overtime pay correctly is essential for payroll compliance and employee satisfaction. As of 2026, federal overtime rules under the Fair Labor Standards Act (FLSA) apply, since Texas does not have separate state overtime laws.

Key Operational Steps for Overtime Pay

• Identify Eligible Employees: Most non-exempt employees must receive overtime pay for hours worked over 40 in a workweek.
• Calculate Overtime Rate: Overtime pay is at least 1.5 times the employee’s regular hourly rate.
• Track Hours Accurately: Maintain precise timekeeping records to capture all hours worked, including overtime.
• Integrate Overtime in Payroll Systems: Configure payroll software to automatically calculate and include overtime pay in employee paychecks.
• Consider Payroll Taxes: Overtime wages are subject to the same federal payroll taxes as regular wages, including Social Security, Medicare, and federal income tax withholding.

Additional Operational Considerations

• Employee Classification: Confirm employee exemption status to determine overtime eligibility and avoid misclassification issues.
• Recordkeeping Compliance: Keep detailed payroll and time records for at least three years to comply with Department of Labor requirements.
• Reporting Requirements: Ensure payroll reports accurately reflect overtime hours and pay for tax filings and audits.
• Automation Opportunities: Use payroll automation tools to minimize errors and streamline overtime calculations and reporting.