When am I entitled to overtime and how is overtime calculated?

Under the FLSA, non-exempt employees are entitled to overtime at the rate of one and one-half times their regular rate of pay for every hour worked over forty hours.

When calculating the overtime rate  bonuses, shift differentials, incentive pay,  and other non discretionary pay should be included in the rate.  Discretionary bonuses, pension and profit sharing contributions and other types of discretionary compensation would not be included when calculating the employee’s rate of pay.

Addtionally, if an employee is paid an hourly premium that is equal to or exceeds the over time rate, this premium would not be included when calculating the employee’s overtime rate.

Below is an explanation of some of the types of payments that maybe included when calculating an overtime rate:

  • Shift Differentials:  Some employees receive a shift differential for working nights and weekends. If the differential is less than half of the employee’s regular hourly rate of pay, it must be included when calculating the rate of pay used in determining the employee’s overtime rate.
  • Longevity pay:  If an employee receives additional pay in recognition of how long they have been employed.  Longevity payments would be included in the regular rate of pay.
  • Bonuses:   There are types of bonuses, discretionary and non-discretionary.  An example of a non-discretionary bonus would be a bonus that is paid as part of an employee’s compensation for achieving certain results of working certain hours.  A discretionary bonus is considered a gift, such as a Christmas bonus.  When calculating an employee’s rate of pay for determining the overtime rate, a non-discretionary would be included, a discretionary bonus would not.
  • 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.

How do you compute the regular rate for salaried employees?

There are many non-exempt salaried employees who are entitled to received overtime pay.  In calculating the rate of a salaried employee, overtime must be paid  at a rate of one and one-half time their regular rate of pay.  The rate at which overtime should be paid is based on the number of hours for which the employee’s salary is intended to compensate him for.

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.

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Donald Fohrman
Donald W. Fohrman & Associates, Ltd.