Overtime calculations and time for payment
Computing your regular rate

How is overtime required to be calculated and when must overtime be paid?

The regular rate of pay is the rate at which overtime compensation must be calculated. For each hour of overtime worked an employee must be paid one and one-half times the employee's regular rate of pay. The regular rate of pay does not necessarily equal an employee's hourly rate of pay. Included in the regular rate of pay are work-related payments that are not made for overtime work such as shift differentials, bonuses, longevity pay, educational incentive pay, etc. Thus, the regular rate always equals or exceeds an employee's hourly rate of pay or, if the employee is salaried, the employee's hourly equivalent.

INCLUDED IN THE REGULAR RATE OF PAY, regardless of whether or not an employee is salaried or hourly paid, are bonuses, shift differentials, educational incentive pay, longevity pay, and with the exception of the items listed below, any other non-discretionary type of payment. Gifts, discretionary bonuses, pension benefit plans, profit sharing and thrift saving plans may all be excluded from the calculation of the regular rate. In addition, if an employer pays an extra hourly premium that equals or exceeds the time and one-half rate for working on a particular holiday or day of the week, the employer may exclude that premium. Some examples of types of payments included in the regular rate are explained below:

• Shift Differentials: Some employers pay a shift differential if an employee works at night on Sundays or holidays. If the differential is less than 50% of the employee's hourly rate of pay, it must be included in the calculation of the regular rate of pay used to compute the employee's overtime rate.
• Bonuses: Some employers fail to adjust an employee's rate of pay after the employer pays the employee a bonus. Non-discretionary bonuses that are tied to working certain hours or achieving certain results must be included in the overtime rate paid. Discretionary bonuses, which are in the nature of a gift, may be excluded. In determining the overtime rate, a non-discretionary bonus may be prorated back over the life of the time period for which it is being paid, within reason.
• Longevity pay: Some employees receive additional pay in recognition of how long they have been employed. These types of payments must be included in the regular rate of pay.
• Incentive pay: Some employers provide additional payments if an employee achieves something such as education or training. These payments must be included in the regular rate of pay.

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How do you compute the regular rate for salaried employees?

As noted above, many salaried employees are entitled to receive time and one-half overtime compensation. Computation of the rate at which overtime must be paid for salaried employees is based on the number of hours for which the employee's salary is intended to compensate him or her. As with hourly rate employees, included in the computation of the regular rate must be bonuses, shift differentials, educational incentive pay, longevity pay and the like.

Salary for Fixed Number of Hours. Most salaries are intended to compensate an employee for his or her regularly scheduled hours during the workweek. To compute the regular rate of pay, the salary plus all other inclusions in the regular rate is divided by the number of hours that the salary is intended to compensate the employee. The employee is entitled to receive one and one-half times his or her regular rate of pay for each hour of overtime worked over 40 hours in a week.

For example, if an employee is paid $600 a week as salary and works a work schedule of 40 hours a week, the employee's overtime rate of pay is computed by dividing $600 by 40. Thus, for each hour of overtime over 40 hours a week, the employee is entitled to receive 1.5 times $15.00, which equals $22.50 an hour.

Fixed Salary for Varying Number of Hours. Some employers pay employees a fixed salary for whatever hours an employee is required to work in a workweek. This is permitted under the U.S. Department of Labor's regulations only if the employee and employer have a clear mutual understanding that the salary is intended to compensate the employee for the straight time portion of his or her hours whatever the number of hours that the employee is required to work. If such an arrangement is properly established, according to the Department of Labor, an employer is obligated to pay only additional "half-time" pay for each hour in excess of 40 hours a week. Some courts and some state overtime laws, however, prohibit this type of calculation method and require that time and one-half overtime pay, rather than just "half-time" pay, be made in addition to employees' salaries.

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