Overtime Calculations Generally
- The FLSA requires the payment of overtime premiums—calculated at one and one-half times an employee’s regular rate of pay—for all hours worked over 40 in a workweek.
- For purposes of calculating overtime hours worked, a “workweek” is any fixed, regularly recurring period of 168 hours (seven consecutive 24-hour periods). While it is often considered Sunday through Saturday, or Monday through Sunday, it may begin and end on any day of the week and at any hour of the day, as defined by the employer.
- An employee’s “regular rate” of pay is the total amount paid to the employee in a workweek—including wages, nondiscretionary bonuses, commissions, shift differentials, and any other form of compensation (except as listed below)—expressed in average hourly rate form.
- The regular rate does not include the following:
- Discretionary bonuses (bonuses for which (i) the employer maintains sole discretion as to whether to pay the bonus, (ii) the employer maintains sole discretion as to the amount of the bonus, and (iii) payment is not made in accordance with any prior contract, agreement, or promise);
- Gifts (including those typically made during the holidays);
- Payments made while an employee is on leave (such as those made pursuant to PTO, vacation, holiday, or sick leave policies) or while an employee otherwise performs no work (such as when work is unavailable due to inclement weather or a supply shortage);
- Payments made for unused paid leave (paid leave buy-backs);
- Expense reimbursements paid to an employee;
- The value of certain “perks” offered to an employee, so long as such “perks” are not tied to the quality or quantity of the employee’s work (examples may include gym access, wellness programs, employee discounts, access to counselors, parking benefits, and tuition reimbursement);
- “Show-up” or “reporting” pay issued on an infrequent and sporadic basis;
- Unanticipated “call-back” pay;
- Payments made pursuant to a qualifying profit-sharing, thrift, or savings plan;
- Contributions to a bona fide plan for retirement, health insurance, life insurance, disability insurance, advanced age, illness, accident, unemployment, legal services, or other events that could cause significant future financial hardship or expense;
- Premium rate payments made for hours worked over eight in a day, over 40 in a workweek, or in excess of the employee’s normal working hours or regular working hours;
- In addition to excluding such payments from the regular rate, the payments may actually be credited toward the overtime premium owed under the law.
- Premium rate payments made for work on Saturdays, Sundays, regular days of rest, or the sixth or seventh day of the workweek, or for work performed beyond the normal workday (not exceeding eight hours) or workweek (not exceeding 40 hours) outlined in good faith under an employment contract or collective bargaining agreement, provided that such premium rate payments are at least one and one-half times an employee’s regular rate of pay; and
- These payments may also be credited toward the overtime premium owed under the law.
- Income derived from a stock option, stock appreciation right, or qualifying employee stock purchase plan.
- While the basic formula for calculating overtime premiums is straightforward—one and one-half times an employee’s regular rate of pay for all hours worked over 40 in a workweek—the precise methodology varies based on the manner in which an employee is paid, whether on an hourly basis, fixed schedule salary basis, fluctuating schedule salary basis, piece-rate basis, day-rate basis, at multiple different rates by the same employer, with bonuses or commissions, with board, lodging, or other facilities, or as a tipped employee. The calculations for determining overtime premiums owed for each such manner of payment are described below.
- *Note that while overtime is calculated at one and one-half times an employee’s regular rate of pay for all hours worked over 40 in a workweek, several of the calculations provided below appear to treat the overtime rate as only half of the regular rate. The reason for this approach is because in these calculations, employees are paid at their regular rate for all hours worked (including overtime hours), representing the “one” of the “one and one-half” requirement. As such, only additional “half” time overtime premiums are due.
Overtime Calculations for Hourly Employees
- (1) Assuming no other forms of compensation are paid, an hourly employee’s regular rate is the same as the employee’s hourly rate.
- (2) The employee’s overtime rate is calculated by multiplying the employee’s regular rate by one and one-half.
- (3) Overtime premiums owed to the employee are then determined by multiplying the employee’s overtime rate by the number of overtime hours (hours over 40) worked in a workweek.
- For example, if an employee is paid $10 per hour and works 50 hours in a workweek:
- The employee’s regular rate is $10 per hour (the same as the employee’s hourly rate).
- The employee’s overtime rate is $15 per overtime hour ($10 per hour regular rate x 1.5).
- The employee is owed $150 in overtime premiums ($15 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $550 in wages for the workweek (($10 per hour x 40 hours = $400 in non-overtime earnings) + $150 in overtime premiums).
Overtime Calculations for Salaried Employees with Fixed Schedules
- (1) Assuming no other forms of compensation are paid, the regular rate for a salaried employee with a fixed schedule is calculated by dividing the employee’s weekly salary by the number of hours that the salary is intended to compensate (typically 40 hours for full-time employees).
- (2) The employee’s overtime rate is calculated by multiplying the employee’s regular rate by one and one-half.
- (3) Overtime premiums owed to the employee are determined by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee is paid a salary of $600 each workweek, which is intended to compensate for 40 hours of work, but the employee works 55 hours in a particular workweek:
- The employee’s regular rate is $15 per hour ($600 weekly salary ÷ 40 hours of regularly scheduled work).
- The employee’s overtime rate is $22.50 per hour ($15 per hour regular rate x 1.5).
- The employee is owed $337.50 in overtime premiums ($22.50 per overtime hour x 15 hours of overtime work).
- The employee is therefore entitled to a total of $937.50 in wages for the workweek ($600 weekly salary + $337.50 in overtime premiums).
Overtime Calculations for Salaried Employees with Fluctuating Schedules (the Fluctuating Workweek Method)
- The fluctuating workweek method enables employers to pay overtime premiums at one-half of the regular rate, rather than one and one-half of the regular rate, if the following conditions are satisfied:
- (1) the employee’s work hours fluctuate from week to week;
- (2) the employee is paid a fixed salary each workweek, regardless of the number of hours worked;
- (3) the fixed salary is large enough to compensate the employee at a rate of not less than the minimum wage for all hours worked; and
- (4) there is a clear mutual understanding between the employer and the employee that the employee’s fixed salary is compensation for all hours the employee may work in a particular week.
- If these conditions are satisfied, overtime calculations proceed as follows:
- (1) Assuming no other forms of compensation are paid, the regular rate for a salaried employee whose hours fluctuate from week to week is calculated by dividing the employee’s weekly salary by the number of hours worked during the week in question.
- (2) The employee’s overtime rate is equal to half of the regular rate.
- (3) Overtime premiums are calculated by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee regularly earns $800 each workweek, and the preceding conditions are satisfied, then during a workweek in which the employee works 50 hours:
- The employee’s regular rate is $16 per hour ($800 weekly salary ÷ 50 hours worked).
- The employee’s overtime rate is $8 per hour (half of the $16 per hour regular rate).
- The employee is owed $80 in overtime premiums ($8 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $880 in wages for the workweek ($800 weekly salary + $80 in overtime premiums).
Overtime Calculations for Employees Paid on a Piece-Rate Basis
- (1) Assuming no other forms of compensation are paid, the regular rate for an employee paid on a piece-rate basis is calculated by adding together all piece rate earnings in the workweek and dividing that figure by the total number of hours worked in the workweek.
- *It’s important to bear in mind that even though piece-rate employees are only paid on a per-unit or per-project basis, employers must still track their total hours worked in order to properly pay them overtime.
- (2) The employee’s overtime rate is equal to half of the regular rate.
- (3) Overtime premiums owed to the employee are determined by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee’s total piece-rate earnings in one workweek are $900, and the employee worked a total of 45 hours during the workweek:
- The employee’s regular rate is $20 per hour ($900 in piece-rate earnings ÷ 45 hours worked).
- The employee’s overtime rate is $10 per hour (half of the $20 per hour regular rate).
- The employee is owed $50 in overtime premiums ($10 per overtime hour x 5 hours of overtime work).
- The employee is therefore entitled to a total of $950 in wages ($900 in piece-rate earnings + $50 in overtime premiums).
- When piece-rate employees are provided with a minimum hourly guarantee, the regular rate is simply the minimum hourly guarantee during workweeks in which piece-rate earnings fall short and the minimum hourly guarantee must be paid. Overtime calculations then proceed as set forth above for hourly employees.
Overtime Calculations for Employees Paid on a Day-Rate Basis
- (1) Assuming no other forms of compensation are paid, the regular rate for an employee paid a flat rate for each day’s work is calculated by adding together all day rates earned in the workweek and dividing that figure by the total number of hours worked in the workweek.
- *Like piece-rate calculations, it’s important to bear in mind that even when employees are paid a flat daily rate for all work, employers must still track their total hours worked in order to properly pay them overtime.
- (2) The employee’s overtime rate is equal to half of the regular rate.
- (3) Overtime premiums owed to the employee are determined by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee is paid $100 per day of work, and the employee works 5 days in a workweek for a total of 50 hours:
- The employee’s regular rate is $10 per hour ($500 in day-rate earnings in the workweek ÷ 50 hours worked).
- The employee’s overtime rate is $5 per hour (half of the $10 per hour regular rate).
- The employee is owed $50 in overtime premiums ($5 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $550 in wages ($500 in day-rate earnings + $50 in overtime premiums).
Overtime Calculations for Employees Paid at Multiple Different Rates
- (1) Assuming no other forms of compensation are paid, the regular rate for an employee paid at multiple different rates—such as an employee who works two or more jobs for the same employer—is equal to the weighted average of all rates of pay.
- To calculate the weighted average of all rates of pay, add together all earnings in the workweek from all rates, then divide that figure by the total number of hours worked in the workweek.
- (2) The employee’s overtime rate is equal to half of the regular rate (the weighted average).
- (3) Overtime premiums owed to the employee are determined by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee at a retail store earns $8 per hour working in the stockroom and $10 per hour working as a cashier, and in a particular workweek the employee works 20 hours in the stockroom and 25 hours as a cashier:
- The employee’s total earnings in the workweek are $410 (($8 per hour for stockroom work x 20 hours of work = $160) + ($10 per hour for cashier work for 25 hours of work = $250)).
- The employee’s regular rate (the weighted average of all rates of pay) is $9.11 per hour ($410 in total earnings ÷ 45 hours worked).
- The employee’s overtime rate is $4.55 per hour (half of the $9.11 per hour regular rate).
- The employee is owed $22.75 in overtime premiums ($4.55 per overtime hour x 5 hours of overtime work).
- The employee is therefore entitled to a total of $432.75 in wages ($160 for stockroom work + $250 for cashier work + $22.75 in overtime premiums).
- *An exception to the weighted average method of calculation is known as the rate-in-effect method, whereby overtime can be paid at one and one-half times the employee’s rate of pay at the time the overtime work is performed. However, the rate-in-effect method is only available if the employer and the employee agree in advance to use the method.
- For example, using the same facts provided above and assuming the employee performed her 5 hours of overtime work while working as a cashier:
- The employee’s overtime rate is $15 per overtime hour ($10 per hour for cashier work x 1.5).
- The employee is owed $75 in overtime premiums ($15 per overtime hour x 5 hours of overtime work).
- The employee is therefore entitled to a total of $435 in wages ($160 for stockroom work + $200 for non-overtime cashier work + $75 in overtime premiums).
Overtime Calculations for Employees Paid with Nondiscretionary Bonuses or Commissions
- As referenced above, the regular rate is comprised of all forms of compensation paid to an employee (with limited exceptions), including nondiscretionary bonuses or commissions.
- (1) When an employee is paid using nondiscretionary bonuses or commissions (with or without other forms of compensation), the regular rate is calculated by adding together all earnings in the workweek and dividing by the total number of hours worked in the workweek.
- (2) The employee’s overtime rate is equal to half of the regular rate.
- (3) Overtime premiums owed to the employee are determined by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee earns $900 in commissions in a workweek for 50 hours of work:
- The employee’s regular rate is $18 per hour ($900 in commissions ÷ 50 hours worked).
- The employee’s overtime rate is $9 per hour (half of the $18 per hour regular rate).
- The employee is owed $90 in overtime premiums ($9 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $990 in earnings ($900 in commissions + $90 in overtime premiums).
- If the same employee also earns $10 per hour:
- The employee’s regular rate is $28 per hour ($1,400 in total compensation (($10 per hour x 50 hours of work) + $900 in commissions) ÷ 50 hours worked).
- The employee’s overtime rate is $14 per hour (half of the $28 per hour regular rate).
- The employee is owed $140 in overtime premiums ($14 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $1,540 in earnings ($500 in hourly wages + $900 in commissions + $140 in overtime premiums).
- *Special rules apply when nondiscretionary bonuses or commissions are paid in consideration for more than one workweek of work, such as in the case of a monthly, quarterly, or year-end bonus.
- Once the amount of an employee’s bonus or commission can be ascertained, the employer is responsible for retroactively recalculating the regular rate for each workweek in which the bonus or commission was earned. The employer must then pay all overtime premiums due based on the increase in the regular rate for each workweek in which the employee performed overtime work.
- For example, if an employee earns a $5,000 year-end bonus after working 2,400 hours in the year, 400 of which were overtime hours:
- The increase in the employee’s regular rate attributable to the year-end bonus is $2.08 per hour ($5,000 bonus ÷ 2,400 hours worked).
- The increase in the employee’s overtime rate attributable to the year-end bonus is $1.04 per hour (half of the $2.08 regular rate increase).
- The employee is therefore entitled to $416 in additional overtime premiums ($1.04 per overtime hour x 400 hours of overtime work).
- *Employers are not required to retroactively recalculate the regular rate if a bonus payment is provided as a percentage of total earnings. That is, if a bonus payment is a predetermined percentage of an employee’s total compensation (including overtime premiums) for the period in which the bonus was earned, the regular rate does not need to be recalculated and payment of the bonus is treated as a simultaneous payment of overtime premiums due on the bonus.
- For example, if a quarterly bonus plan provides that employees will receive a fixed 5% of their total compensation earned in the quarter—inclusive of overtime premiums—payment of the bonus satisfies overtime requirements and no additional overtime premiums will be due upon payment.
Overtime Calculations for Employees Provided with Board, Lodging, and Other Facilities
- The reasonable cost or fair value of certain goods or services, including board, lodging, and other facilities (potentially including meals), may be considered wages and may need to be included in calculating the regular rate when the goods or services are provided for the benefit or convenience of the employee.
- (1) When an employee is provided with board, lodging, or other facilities for the benefit or convenience of the employee, the regular rate is calculated by adding together all earnings, including the reasonable cost or fair value of the board, lodging, and other facilities, and dividing by the total number of hours worked in the workweek.
- (2) The employee’s overtime rate is equal to half of the regular rate.
- (3) Overtime premiums owed to the employee are determined by multiplying the overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if an employee earns $10 per hour, as well as room and board valued at $200 per week, and works 50 hours in a workweek:
- The employee’s regular rate is $14 per hour ($700 in total compensation (($10 per hour x 50 hours of work) + $200 in room and board) ÷ 50 hours worked).
- The employee’s overtime rate is $7 per hour (half of the $14 per hour regular rate).
- The employee is owed $70 in overtime premiums ($7 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $570 in earnings ($500 in hourly wages + $70 in overtime premiums), plus the benefit of room and board.
- Another way to approach this, looking only to the effect of the room and board, is as follows:
- The increase in the employee’s regular rate attributable to the weekly value of the room and board is $4 per hour ($200 weekly value of room and board ÷ 50 hours worked).
- The increase in the employee’s overtime rate attributable to the weekly value of the room and board is $2 per hour (half of the $4 regular rate increase).
- The employee is therefore entitled to $20 in additional overtime premiums ($2 per overtime hour x 10 hours of overtime work).
Overtime Calculations for Tipped Employees
- (1) The regular rate for a tipped employee paid using the tip credit is the amount of the direct cash wage paid by the employer plus the tip credit claimed by the employer.
- As described in the Minimum Wage Exemptions section, if an employee is considered a tipped employee, the employee may be paid a direct cash wage of just $2.13 per hour, as long as the employee’s tips, when combined with the direct cash wage paid by the employer, bring the employee’s average hourly rate to at least the minimum wage of $7.25 per hour. The portion of the $7.25 minimum wage that the employer does not pay in cash, and instead uses the employee’s tips to cover (up to $5.12 per hour), is referred to as the “tip credit” claimed by the employer.
- Typically, the regular rate for tipped employees is simply equal to the $7.25 minimum wage (the sum of the direct cash wage of $2.13 per hour and the tip credit of $5.12 per hour), but if an employer chooses to pay a higher direct cash wage, and does not take a correspondingly lower tip credit, the regular rate may be higher.
- (2) The tipped employee’s overtime rate is calculated by multiplying the regular rate by one and one-half.
- (3) The tipped employee’s adjusted overtime rate is determined by subtracting the tip credit claimed from the overtime rate.
- (4) Overtime premiums owed to the tipped employee are calculated by multiplying the adjusted overtime rate by the number of overtime hours (hours over 40) worked in the workweek.
- For example, if a tipped employee works 50 hours in a workweek and is paid a direct cash wage of $2.13 per hour (using the typical $5.12 per hour tip credit):
- The employee’s regular rate is $7.25 per hour ($2.13 per hour direct cash wage + $5.12 per hour tip credit claimed).
- The employee’s overtime rate is $10.88 ($7.25 per hour regular rate x 1.5).
- The employee’s adjusted overtime rate is $5.76 ($10.88 per hour overtime rate – $5.12 per hour tip credit claimed).
- The employee is owed $57.60 in overtime premiums ($5.76 per overtime hour x 10 hours of overtime work).
- The employee is therefore entitled to a total of $142.80 in direct wages for the workweek (($2.13 per hour x 40 hours = $85.20 in direct non-overtime earnings) + $57.60 (in overtime premiums)). This amount is paid in addition to any tips earned by the employee that the employee is entitled to keep (i.e. after operation of a valid tip pool or lawful credit card processing fee deductions, as applicable).
