Overtime rules were written for factory floors, not for project teams that bill by the hour and blow through a sprint deadline once a quarter. That mismatch is exactly why so many agencies and consulting firms get it wrong. This isn't legal advice, rules vary by state and country and change without much warning, but it is a practical map of where billable teams specifically get tripped up, and what to fix before payroll finds the problem for you.
In this guide
Who's actually exempt, and who isn't Where billable teams get this wrong Writing a policy people actually follow Tracking and approving it without a fight Frequently asked questions
Who's Actually Exempt, and Who Isn't
Salary doesn't equal exempt. That's the single most common mistake in agency HR, and it's an expensive one. In the US, under the Fair Labor Standards Act, an employee is only exempt from overtime if they clear a duties test (the role is genuinely executive, administrative, or professional in how it's actually performed, not just titled) and a minimum salary threshold. A "Junior Consultant" paid $48,000 a year who spends most of their time on data entry and status updates is very likely non-exempt no matter what the offer letter says.
The threshold itself has been a moving target. The Department of Labor tried to raise the federal salary floor in 2024, and a federal court in Texas vacated that rule on November 15, which reset the number back down to the older $35,568 figure. That kind of whiplash is normal for this area of law, and it's a good reason not to set your policy once and forget it. Several states, California and New York among them, already run their own thresholds well above the federal number, so a national team can have three different rules applying to three offices on the same day.
Practically: if you have hourly staff, they're non-exempt, full stop, and overtime applies at 1.5x their regular rate past 40 hours in the workweek (some states use daily triggers too). If you have salaried staff, don't assume, check the duties and the current threshold for wherever that person actually sits.
Where Billable Teams Get This Wrong
Here's the scenario that catches most agencies. A client wants a launch pushed up two weeks. The account team scrambles, and a coordinator logs 46 hours that week instead of the usual 38. If she's non-exempt, the firm owes six hours at 1.5x her rate, roughly $42 an hour instead of $28, regardless of whether the client's fixed-fee contract has any room to absorb that cost. Multiply that by eight people during a crunch and you've quietly created a $3,000-plus wage bill that nobody budgeted for and that shows up nowhere on the project's profitability report until finance closes the month.
The deeper trap is that overtime attaches to hours worked, not hours billed. A team that only logs billable time in its timesheet system is blind to the internal meetings, proposal writing, and admin hours that also count toward the 40-hour threshold. That gap between what gets tracked and what actually happened is exactly what creates wage exposure nobody sees coming. This is one of the reasons we wrote a separate guide on time tracking best practices for agencies and consulting firms, because the fix for overtime risk and the fix for messy time data are usually the same fix.
Fixed-fee projects with hard deadlines are the classic setup for this. There's no budget line for overtime because the deal was priced on estimated hours, not actual ones, so when the estimate turns out wrong, the firm eats both a wage compliance problem and a margin problem on the same project, at the same time.
Writing a Policy People Actually Follow
Most overtime policies fail because they're written once, buried in an employee handbook, and never referenced again until there's a dispute. A policy that actually holds up has a handful of specific, boring rules that everyone can recite:
- Define the workweek in writing. A fixed, recurring seven-day period, Monday through Sunday for example, that doesn't shift week to week for accounting convenience.
- Require pre-approval past a threshold. Set the trigger below 40, say 36 or 38 hours, so a manager gets a heads-up before overtime becomes unavoidable, not after.
- Don't offer comp time instead of pay. For non-exempt private-sector employees in the US, banking hours off in lieu of overtime pay is not a legal substitute, even if everyone agrees to it informally.
- Log all hours worked, not just billable ones. A timesheet that only captures client-facing time will always undercount actual overtime exposure.
- Tag each employee's work location. Overtime rules follow where the work happens, not where headquarters is, which matters the moment you have even one remote hire in a different state.
A policy nobody can find isn't a policy. Put the threshold and the approval step directly into whatever tool your team already uses to log time. If it takes a Slack search and a call to HR to find out the rule, it's not going to get followed during the exact week it matters most.
Tracking and Approving It Without a Fight
Spreadsheets hide overtime creep until it's already happened. Someone logs 44 hours in cell G14 three weeks ago, nobody notices, and finance finds out during payroll reconciliation, long after the manager could have shifted work to someone with capacity. That's backwards. The point of catching overtime isn't the paperwork trail, it's catching it while there's still time to redistribute the work or have a conversation with the client about scope.
What actually works is a system where timesheets, project budgets, and payroll approvals share the same data, so a coordinator crossing 38 hours on a Wednesday triggers a flag for her manager that same day, not a surprise on the next pay run. Autovella's time tracking and project features are built around exactly that kind of live threshold, hours worked get compared against budget and against the overtime trigger as they're logged, not after the fact. If you're weighing this against the cost of an HR fire drill or a labor complaint, it's worth comparing against what you're currently paying for the spreadsheet-and-hope approach; the pricing page breaks down what a connected setup costs at different team sizes.
None of this replaces an employment attorney reviewing your actual policy against your actual states of operation. But most of the risk in this area isn't legal complexity, it's operational blindness: nobody sees the hours climbing until the check is already wrong.
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Frequently asked
No. Paying someone a salary is only half the test. In the US, exemption also depends on a duties test, whether the role is genuinely executive, administrative, or professional in nature, and on meeting a minimum salary threshold that can change by court ruling or state law. A junior account coordinator paid a flat salary can still be legally non-exempt and owed overtime if their actual job duties don't meet the exemption criteria.
Yes, for non-exempt employees. Overtime obligations attach to hours actually worked in the workweek, not hours that happened to be billable. Internal meetings, proposal writing, and admin time all count toward the 40-hour threshold even though none of it shows up on a client invoice.
Track by the employee's work location, not your headquarters. Overtime rules follow the state (or country) where the work is performed, and several states set daily overtime triggers or higher salary thresholds than federal law requires. The practical fix is to tag each timesheet with a jurisdiction and apply that jurisdiction's rule automatically, rather than trying to remember which of your twelve states does what.