Overtime is one of those areas where small and medium business owners often get into trouble not because they’re trying to avoid paying people fairly, but because the rules are genuinely confusing. Federal law sets the baseline, states can layer additional requirements on top, and the line between who qualifies and who doesn’t isn’t always obvious. If you’re running a business in Massachusetts or New Hampshire, here’s what you need to know.

The federal starting point comes from the Fair Labor Standards Act, which requires you to pay eligible employees one and a half times their regular rate for any hours worked beyond 40 in a workweek. That’s the rule most people know. What’s less understood is who it actually applies to.

Not every employee is automatically entitled to overtime. The law divides workers into two categories: exempt and non-exempt. Non-exempt employees must receive overtime pay. Exempt employees don’t have to, but the exemption isn’t just about job title or whether someone is salaried. To qualify as exempt under federal law, an employee generally needs to meet two tests: they need to earn at least $684 per week (as of the most recent federal threshold), and their job duties need to fall into specific categories like executive, administrative, or professional roles. Both conditions must be true. Paying someone a salary doesn’t automatically make them exempt, and giving someone a manager title doesn’t either.

Massachusetts follows the federal overtime framework but adds a few things worth knowing. The state has its own Sunday and holiday pay rules that apply to certain retail businesses — historically requiring premium pay for work on those days, though this has been phasing out gradually and is worth confirming with current state guidance since the rules have been in transition. Massachusetts also has a strong history of enforcement around wage and hour laws, and the penalties for violations can include triple damages plus attorney’s fees, which makes getting it right genuinely important.

New Hampshire largely mirrors the federal rules without as many state-level additions. There’s no state-specific overtime threshold beyond the federal one, and New Hampshire doesn’t have the Sunday premium pay tradition that Massachusetts does. That said, the same basic obligations apply: non-exempt employees working more than 40 hours in a week are owed time and a half, and misclassifying employees to avoid that is treated seriously.

One of the most common mistakes in both states is misclassifying employees as exempt when they don’t actually meet the criteria. This tends to happen with roles like assistant managers, team leads, or office administrators who are paid a salary but spend most of their time doing the same work as hourly employees. If the primary duty test isn’t met, the salary doesn’t matter — they’re owed overtime. The Department of Labor looks at what someone actually does day to day, not what their job description says.

Independent contractor classification is a related trap. Employers sometimes classify workers as contractors partly to avoid overtime obligations, but both states scrutinize this carefully. Massachusetts in particular uses a fairly strict three-part test to determine contractor status, and getting it wrong exposes you to back pay, penalties, and taxes you should have been withholding all along.

A few practical things to keep in mind. Overtime is calculated on a workweek basis, not a pay period basis, so you can’t average hours across two weeks to avoid the threshold even if you pay biweekly. Bonuses and commissions can affect the regular rate calculation in ways that change what you actually owe for overtime hours. And recordkeeping matters — you’re required to keep accurate records of hours worked, and if there’s ever a dispute, the burden tends to fall on the employer to prove the hours and pay were handled correctly.

If you’re unsure whether your exempt classifications are holding up, or whether your overtime calculations are accurate, it’s worth a conversation with an employment attorney or a payroll professional who knows Massachusetts and New Hampshire law. The cost of that conversation is a lot smaller than the cost of a wage claim.