What is qualified overtime compensation?

Overtime that section 7 of the FLSA required, limited to the amount paid above your regular rate. In time and a half, that is the half, which is one third of the overtime payment.

Does double time qualify?

Only to the extent the FLSA required it. The portion above the FLSA requirement, whether from state law or a contract, does not qualify.

I am exempt but I get paid overtime. Can I claim it?

No. The deduction is tied to overtime the FLSA required, and the FLSA requires none for exempt employees.

Do shift differentials count?

Not as qualified overtime, but they raise your regular rate, which raises the premium on your overtime hours and therefore the qualifying amount.

Qualified overtime deduction

"Qualified" is doing a lot of work in this phrase. Most overtime pay is not qualified overtime compensation.

The statutory test

Section 225(c) defines qualified overtime compensation as overtime required under section 7 of the Fair Labor Standards Act that is paid in excess of the regular rate at which the employee is employed. Anything that is a qualified tip under section 224 is excluded, so the same dollar cannot be claimed twice.

The arithmetic follows from that: FLSA overtime hours, times one half, times the FLSA regular rate. On a $20.00 regular rate with 10 FLSA overtime hours, that is $100 of qualified overtime, not the $300 those hours paid.

What is excluded

Pay above what the FLSA required. Double time, contractual overtime and overtime owed only under state law do not qualify beyond the FLSA-required amount. Where an employer pays double time on hours the FLSA covered, the qualifying part is still only the half-rate premium.

Anything paid to an exempt employee. If the FLSA does not require your overtime, none of it qualifies, no matter what your employer or collective agreement calls it.

Self-employment. Section 7 applies to employees, so there is no qualified overtime without an employment relationship. The narrow exception is a worker who is an FLSA employee but treated as a contractor for tax purposes, which the IRS describes as rare.

Premium pay that is not overtime. Shift differentials, weekend premiums and holiday pay are not FLSA overtime. They can raise the regular rate, which raises the premium, but they are not qualified overtime in themselves.

The regular rate is the hinge

Everything turns on the regular rate, which is all straight-time earnings for the week divided by hours worked, including non-discretionary bonuses and shift differentials. Get that wrong and the qualified figure is wrong by the same proportion.

Where a bonus is allocated back across weeks and lifts the regular rate retroactively, the qualified overtime for those weeks rises too. The IRS set out acceptable approaches to these situations, including the one-third shortcut for aggregated time-and-a-half pay, in Notice 2025-69.

Common questions

What is qualified overtime compensation?: Overtime that section 7 of the FLSA required, limited to the amount paid above your regular rate. In time and a half, that is the half, which is one third of the overtime payment.
Does double time qualify?: Only to the extent the FLSA required it. The portion above the FLSA requirement, whether from state law or a contract, does not qualify.
I am exempt but I get paid overtime. Can I claim it?: No. The deduction is tied to overtime the FLSA required, and the FLSA requires none for exempt employees.
Do shift differentials count?: Not as qualified overtime, but they raise your regular rate, which raises the premium on your overtime hours and therefore the qualifying amount.