During a review of US Department of Labor news releases, it was obvious that employers everywhere are still making mistakes in overtime calculations that is costing those employers large amounts of money. Overtime for non-exempt employees must be based on the “regular rate of pay” the employee is earning. Unfortunately, this is not the stated hourly wage for which the employee was hired, rather it is defined by the USDOL as:
The regular rate on which overtime pay is calculated includes remuneration (or pay) for employment, and certain payments made in the form of goods or facilities customarily furnished by the employer. For example, where the employee’s wages include lodging customarily furnished by the employer, the reasonable cost or the fair value of the lodging furnished must be added to the employee’s earnings before determining the regular rate. The regular rate does not include certain payments excluded by the FLSA. Learn more about the statutory exclusions.
An employee’s earnings may be determined on a piece-rate, salary, commission, or some other basis, but in all cases the overtime pay that is due must be computed on the basis of the regular rate.
The regular rate is the average hourly rate calculated by dividing the total pay for employment (except the statutory exclusions) in any workweek by the total number of hours actually worked.
In general, hours worked includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work. Also included is any additional time the employee is suffered or permitted (i.e., allowed) to work. Review the definition of hours worked. To learn which work-related activities are considered hours worked, review the FLSA Hours Worked Advisor.
A workweek is a fixed and regularly recurring period of 168 hours, or seven consecutive 24-hour periods. It may begin on any day of the week and at any hour of the day. An employee’s frequency of pay (e.g., bi-weekly, semi-monthly, monthly) has no impact on this fixed workweek. Each workweek stands alone; averaging hours worked over two or more workweeks is not permitted by the FLSA.
In an opinion letter released on the subject of regular rate of pay the USDOL said:
Neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an “actual fact” based on “mathematical computation.” Walling v. Youngerman-Reynolds Hardwood Co., Inc., 325 U.S. 419, 424–25 (1945); 29 C.F.R. § 778.108.
As I emphasized in the quote the regular rate of pay is an actual fact, based on mathematical computation. Too many employers make the mistake of bargaining with the rate, or arbitrarily setting the rate and then getting employees to agree to it. That is the road to trouble.
Understand how the rates are set and pay accordingly, otherwise, you may find yourself paying very large sums to fix your problems.