Staffing Agency Overtime Pay: How to Calculate, Pay, and Bill It Correctly
Overtime is where staffing compliance and gross margin collide. This guide covers who owes overtime, how to calculate the regular rate, how to bill it, and how to keep it clean in payroll.
Key Takeaways
- Non-exempt temps are owed at least 1.5x their regular rate for hours over 40 in a workweek, and the agency as W-2 employer usually runs that payroll.
- Clients can share liability as joint employers, so contracts should spell out who tracks hours and who pays.
- The regular rate includes shift differentials and nondiscretionary bonuses, which is where most overtime errors start.
- Hours a worker spends on different assignments for the same agency in one workweek generally count together.
- Set an overtime bill rate in every client agreement so premium pay never comes out of your margin.
It's Monday morning, and payroll closes at noon. A light industrial temp's timecard shows 46 hours for the week, the client approved it, and the client agreement has no overtime bill rate. Someone on your team now has to decide what the worker is owed and what the client gets invoiced.
Staffing agency overtime pay gets complicated because three parties touch every hour. The client sets the schedule, the worker logs the time, and the agency, as the W-2 employer, usually runs payroll and sends the invoice, so small errors repeat across every placement.
Overtime mistakes usually surface as back-wage claims or premium pay that never reaches the client invoice. This guide covers who owes overtime pay, how to calculate and bill it, which state rules apply, and which controls keep it accurate.
Do Staffing Agencies Have to Pay Overtime?
Yes, staffing agencies have to pay overtime. The Department of Labor (DOL) says the Fair Labor Standards Act (FLSA) requires at least 1.5 times the regular rate after 40 hours a week. That rule covers non-exempt temps the same way it covers any other employee, and the agency, as employer of record, typically processes the pay.
Two points trip up agencies most often. First, the DOL says overtime can't be waived by agreement, so a worker who accepts straight time still gets the premium. Second, employers still have to pay unapproved overtime.
DOL regulations treat work an employer suffers or permits as work time, and a written policy against it isn't enough. If the employer knew or had reason to know the work happened, the hours count. The practical fix is to prevent unwanted hours through scheduling and approvals, because the pay is owed once the work is done.
Which Temps Are Exempt
Exemption from overtime is narrow. The executive, administrative, and professional exemptions generally require passing three tests: salary basis, salary level, and job duties. A temp paid by the hour usually won't meet the salary basis test, which is why most staffing payrolls are non-exempt.
The federal salary level is $684 per week ($35,568 per year), and the highly compensated employee level is $107,432. Federal courts vacated the DOL's 2024 increase, and the DOL restored the $684 figure in the Code of Federal Regulations on May 15, 2026. Many states set higher thresholds, so check the work location before treating a salaried placement as exempt.
Classification is fact-specific, so it's worth having counsel review edge cases such as salaried professional placements.
Who Is Responsible for Overtime: The Agency or the Client?
In most staffing arrangements, the agency is the employer of record that runs payroll and issues the W-2. The client controls the schedule and decides when a shift runs long. That split is why overtime liability can reach both parties.
In its April 2026 proposed rule, the DOL describes joint employers as jointly and severally liable for wages, damages, and penalties owed. It names staffing agencies and their clients as an example, and it says a joint employer is liable for all hours worked. Whether a specific client is a joint employer depends on the facts of each case.
The federal rule itself is in flux. According to background in the DOL's April 2026 proposal, the DOL issued a joint employer rule in 2020, a federal court vacated most of it that year, and the DOL rescinded it in 2021. In that proposal, the DOL proposed a new standard built on four factors:
- Hiring or firing the worker
- Substantial supervision of the worker's schedule or conditions
- Setting the worker's rate and method of pay
- Keeping the worker's employment records
The comment period closed June 22, 2026, and as of this writing the standard remains a proposal.
In practice, the cleanest split is for the client to approve time while the agency pays the worker and bills the client. Put that division in the client agreement. Add who authorizes overtime, the weekly approval deadline, the overtime bill rate, and indemnification for hours the client directs but doesn't report.
With a white-label Employer of Record such as Ascen, the EOR becomes the legal employer and handles payroll and compliance behind the scenes. The placement, the client relationship, and the brand stay with your firm.
How to Calculate Overtime for Temp Workers
The DOL defines a workweek as a fixed, regularly recurring period of 168 hours. Averaging across weeks isn't permitted, so 50 hours one week and 30 the next still produces 10 overtime hours.
The regular rate is total pay for the week divided by total hours worked. Shift differentials and nondiscretionary bonuses, such as a promised attendance bonus, go in.
Expense reimbursements and truly discretionary bonuses stay out. A bonus is discretionary only when the employer decides both the fact and the amount near period end, with no prior promise.
Per diems need the same care. The DOL lets employers exclude reimbursements that reflect actual or reasonably approximate expenses (29 CFR 778.217). Reimbursements that don't, such as a flat per diem unrelated to real travel costs, may have to be included in the regular rate.
Worked Example: Shift Differential and Bonus
Take a temp with a $20 base rate who works 45 hours in one workweek. Twenty of those hours are night shifts with a $2 differential, and the worker earns a promised $50 attendance bonus.
Straight-time earnings = (45 × $20) + (20 × $2) + $50 = $990
Regular rate = $990 ÷ 45 = $22.00
Overtime premium = 5 × ($22.00 × 0.5) = $55.00
Total pay = $990 + $55 = $1,045
Straight-time earnings already cover all 45 hours, so only the half-time premium is added. A payroll setup that pays overtime at 1.5 times the $20 base would total $1,040 for the same week. That leaves the worker $5 short, and across 50 temps on the same schedule the gap reaches $250 a week.
When One Worker Has Two Assignments
Hours for the same employer count together in a workweek, even when they're split across clients. Say a worker on your payroll works 25 hours at Client A for $18 an hour and 20 hours at Client B for $22. Neither client sees overtime, yet the agency owes 5 overtime hours.
When rates differ, DOL regulations (29 CFR 778.115) use a weighted average: total earnings divided by total hours.
Straight-time earnings = (25 × $18) + (20 × $22) = $450 + $440 = $890Regular rate = $890 ÷ 45 = $19.78Overtime premium = 5 × ($19.78 × 0.5) = $49.45Total pay = $890 + $49.45 = $939.45
The regulations also allow an alternative method under specific conditions, so confirm which one your payroll applies. Billing is a contract decision. Decide upfront whether the client whose hours crossed 40 pays the premium or the agency absorbs it, and write that into both agreements.
State Overtime Rules That Change the Math
Federal law sets the floor, and some states, including California, Colorado, and Alaska, add daily overtime triggers. The FLSA doesn't excuse noncompliance with state laws that set a higher minimum wage or a shorter maximum workweek, so payroll has to meet the state rule wherever it is stricter.
California's rules are the most detailed of the three. For most non-exempt employees, the California Labor Commissioner's Office requires:
- 1.5 times the regular rate for hours over 8 and up to 12 in a workday
- Double the regular rate for hours over 12 in a workday
- 1.5 times the regular rate for the first 8 hours on the seventh consecutive workday in a workweek
- Double the regular rate for hours over 8 on that seventh day
Exemptions and exceptions apply, including alternative workweek schedules. Under the default rules, a temp who works four 10-hour shifts has exactly 40 hours and still earns 8 hours of daily overtime.
Colorado's COMPS Order requires 1.5 times the regular rate for hours worked beyond 40 hours a week, 12 hours a day, or 12 consecutive hours. Whichever produces the higher payment applies. Alaska requires daily overtime after 8 hours for employers with four or more employees.
For multi-state staffing, configure overtime rules by each worker's work location. A Texas agency placing a temp in Sacramento needs California rules on that timecard. Ascen supports staffing coverage across all U.S. states, which helps when one client order spans several of them.
How to Bill Clients for Overtime Without Losing Margin
The pay rate is what the worker earns per hour, and the bill rate is what the client pays per hour. The spread between them covers payroll taxes, other employer burden, and your margin. Overtime puts that spread at risk when the client agreement is silent.
There are two common ways to set an overtime bill rate:
- Multiply the straight-time bill rate by 1.5
- Apply your markup to the overtime pay rate (pay rate × 1.5)
With a constant multiplier, both methods produce the same number. Whether the markup applies to the premium or only to base pay is a point to negotiate with each client.
Here is how the choice plays out. A $20 pay rate with a 1.5 multiplier gives a $30 bill rate and a $10 spread per straight-time hour. Overtime pay for that worker is $30 an hour.
OT billed at 1.5 × $30 bill rate = $45 bill − $30 pay = $15 gross spread per OT hour
OT billed at straight $30 rate = $30 bill − $30 pay = $0 gross spread per OT hour
At $45, overtime hours keep the same 1.5 multiplier as straight time. At the straight $30 rate, the worker gets the full bill rate, and nothing is left for burden or margin.
Burden widens the gap. Employer payroll taxes are calculated on wages, so they rise with overtime pay. On hours billed at straight time, that cost comes out of your margin.
The fix belongs in the client agreement: an overtime bill rate, a named approver, and an approval deadline. Ascen's pay-bill software connects timesheets, approvals, payroll, and invoicing in one platform. The overtime hours that reach payroll also reach the client invoice.
Build Overtime Controls Into Your Back Office
Most overtime errors start as process errors. These controls catch them before payroll closes:
- Set a fixed workweek start day and time for every worker
- Aggregate each worker's hours across all assignments before calculating overtime
- Flag timecards over 40 hours, or over state daily limits, before approval
- Require client approval of overtime by a set deadline each week
- Audit regular-rate inputs, including differentials, bonuses, and per diems, every pay period
- Keep payroll records for at least three years and time cards for at least two, per federal recordkeeping rules
Retention matters because of the lookback period. According to the DOL, back wages can generally be recovered for two years, or three for willful violations. An equal amount in liquidated damages may also be recovered.
For context, the DOL's Wage and Hour Division recovered more than $259 million in back wages in fiscal year 2025. That covered nearly 177,000 workers across all industries.
Overtime also strains cash flow, because a heavy week pushes payroll above forecast while the client invoice waits on payment terms. Payroll funding bridges that gap so workers are paid on time. Ascen's timesheets, approvals, payroll, invoicing, and embedded payroll funding support these controls behind the scenes.
Frequently Asked Questions
Is overtime 35 or 40 hours?
Under federal law, overtime starts after 40 hours in a workweek. Some states, including California, Colorado, and Alaska, also trigger it by daily hours.
What is OT pay for $20 an hour?
If $20 is the worker's only pay that week, overtime is $30 an hour. Shift differentials or nondiscretionary bonuses raise the regular rate, which also raises the overtime rate.
Can a staffing agency refuse to pay unapproved overtime?
No, if the employer knew or had reason to know the work was performed, it must pay for the hours. Prevent unapproved overtime through scheduling and approval workflows instead.
What is the new overtime rule for 2026?
The 2026 change is a federal income tax deduction for employees on the premium portion of qualified overtime, up to $12,500 ($25,000 joint). Employers report it separately starting with tax year 2026, and FLSA overtime obligations are unchanged.
Can I legally say no to overtime?
Federal overtime law governs how extra hours are paid, and whether a worker can decline them depends on state law and the assignment terms. Spell out overtime expectations in the assignment offer so workers know before they start.
Overtime Done Right Protects Workers and Margin
Staffing agency overtime pay depends on discipline in three areas: the calculation, the client agreement, and the timecard workflow. When the regular rate is right, the bill rate is in writing, and hours are aggregated before approval, overtime becomes billable work. Ascen supports staffing firms behind the scenes with white-label Employer of Record services, pay-bill software, payroll funding, and coverage across all U.S. states, so your team stays focused on clients and placements.
