Most managers think overtime calculation is simple—1½ times the hourly rate. That’s one of the most common wage and hour misconceptions—and violations. Overtime is 1½ times the “regular rate,” which is often not the same as the hourly rate.
The regular rate must include the reasonable cost of meals, lodging, and other facilities provided to the employees, nondiscretionary bonuses, on-call pay, shift differentials, and cash benefit payments from Section 125 Cafeteria Plans and other forms of compensation not specifically excluded from overtime laws by the Fair Labor Standards Act (FLSA).
There are eight narrowly construed exceptions to inclusion of payments in the regular rate:
- Gifts (The amount should not be so substantial that employees would consider it part of their wages.)
- Vacation, holiday or sick leave pay, and other similar payments not made as compensation for hours worked, production, or efficiency
- Discretionary payments or certain bona fide profit-sharing plans or talent fees
- Bona fide fringe benefits
- Premium overtime pay
- Holiday or weekend time-and-a-half premium pay
- Extra nonovertime premium pay agreed on by employment contract or by collective bargaining agreement
- Certain stock option compensation provided under an employer plan that meets the requirements of 29 USC 207 (e)(8)
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Overtime Plus Additional Compensation
The following example demonstrates the calculation of overtime for an employee who has received additional forms of compensation:
An employee with an hourly rate of $12 per hour works 45 hours in a week and also receives a $50 bonus and $50 in lodging. The employer must combine all the sources of compensation:
(45 hours x $12) + ($50 bonus) + ($50 lodging) = $640
This total divided by hours worked will provide the employee’s true hourly rate for the week, $14.22, and time and a half must be calculated from this number ($14.22 x 1.5 = $21.33).
So this employee’s total pay for the week would be (40 hours x $12) + (5 hours x $21.33) + ($50 bonus) + ($50 lodging) = $686.67.
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Overtime Math—Conversions to Hourly Rate
In general, overtime for employees not paid a straight hourly wage is figured by converting to an hourly rate as follows:
Salaried with fixed 40-hour week. The overtime rate is 11/2 times the rate per hour (weekly salary divided by 40) for all hours over 40 hours per week.
Salaried with fixed week of fewer than 40 hours. The overtime rate is 11/2 times the rate per hour (weekly salary divided by number of hours that the salary is intended to compensate) for all hours over 40 hours per week.
Salaried with irregular week. Employees who are paid a salary and whose hours vary from week to week receive an overtime premium calculated as follows: For each hour worked over 40, add one-half the rate per hour for that week. The rate per hour is the weekly salary divided by the actual number of hours worked in the workweek.
Semimonthly salaries. The salary is multiplied by 24 and divided by 52 to obtain a weekly rate.
Monthly salaries. The salary is multiplied by 12 and divided by 52 to obtain a weekly rate.
Job or day rate. If the employee is paid a flat sum for a day’s work or for doing a particular job without regard to the number of hours worked, and if he or she receives no other form of compensation for services, his or her regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. The employee is then entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.
Piecework. When an employee is employed on a piece-rate basis, his or her regular hourly rate of pay is computed by adding together his or her total earnings for the workweek and dividing by the number of hours worked in the week. For overtime work, the pieceworker is entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.
In tomorrow’s Advisor, more on tricky overtime questions, plus an introduction to BLR’s unique 10-minutes-at-a-time training system.
Thanks for sending out consistently interesting and relevant articles. It is my understanding that the following is the correct way to calculate overtime, and results in a slightly smaller amount of total pay due.
(45 hours x $12) + ($50 bonus) + ($50 lodging) = $640
This total ($640) divided by hours worked will provide the employee’s regular rate of pay for the week, $14.22. Since the employee has already received her regular rate of pay for all hours worked ($640), all she is due is the half time portion of the overtime.
The correct formula for the half time is 0.5 x $14.22 x 5 OT Hours = $35.55
So this employee’s total pay for the week would be (45 hours x $12) + ($35.55 OT premium) + ($50 bonus) + ($50 lodging) = $675.55 (not $686.67 as stated in the article)
Said another way, the regular rate of pay is $14.22, so the total pay due is ($14.22 x 40) + ($14.22 x 1.5 x 5 OT hours) = $675.45 total due (the different formulas are pennies apart based on rounding to $14.22, but totally acceptable)
Don’t forget state variations. In CA, for example, in addition to the piecework method discussed above, the piece or commission rate can be used as the regular rate, with the worker paid one and one-half this rate for production during the first four overtime hours in a workday, and double time for all hours worked beyond 12 in a workday.