It's important to understand the difference between worked time and non-worked time for overtime calculations. Continue reading to learn:
How the regular rate of pay is calculated and used to determine the amount of overtime pay an employee must be paid under the FLSA
How multiple rates of pay can retroactively affect the regular rate of pay and the overtime calculation
Time Worked and Overtime
A few important notes regarding Overtime:
Overtime is a premium to hourly pay and granted for time worked within a workweek that exceeds 40 hours
The regular rate of pay determines how overtime is calculated
Calculating the overtime premium is based on the regular rate of pay, which can change based on things like quarterly bonuses or if an employee is paid different rates throughout the workweek in which overtime occurs
Time Worked
When calculating the regular rate of pay, the formula is Pay for all hours worked (less exceptions), divided by All Hours Worked.
In order to calculate All Hours Worked we need to understand when an employee must be compensated for all of the hours they spend on their job. However, there are certain activities that are not compensable.
For example, time commuting to a job site may or may not be a compensable event.
Below is a table of relevant definitions:
Workday | A workday may be no longer than the employee’s scheduled shift, hours, tour of duty, or time on a production line. Workdays may vary from day to day, depending on when the employee starts or stops their principal activities. |
Preliminary or Postliminary Activities | Any activity that must be accomplished during a portion of the workday are compensable if defined as such by union contract, custom, practice, or regulatory guidance. (e.g., changing clothes, cleaning tools) |
Principal Activities | All activities deemed an integral part of the business; they are so closely related as to be indispensable to its performance (e.g., maintenance of machinery - oiling, greasing, cleaning, installing new parts) Activities not considered integral - punching in and out or waiting in line to do so; passing through security devices; and traveling to the job site |
Donning & Doffing (changing clothes) | This can be a tricky area of compensability. If the changing of clothing at the beginning or the end of the shift is an integral and indispensable to the company’s principal activities, then it is likely compensable time. Usually this time is required by regulatory guidance, company policy, safety reasons, or under a union contract. If, on the other hand, it is just for the convenience of the employee, it would not be considered compensable time. (e.g., putting on such items as hard hats, protective eye gear, hair nets) |
Call-back & Show-up Pay | Some employers, for various reasons, pay call-back (aka call-out) pay whenever an employee gets called back to work after the end of their shift. Additionally, some companies pay show-up (aka reporting) pay if one of their employees arrives at work for their designated shift but there is no work for them to perform. In both of these cases, the hours paid but not actually worked are not counted towards the 40 hours worked for overtime purposes. |
Waiting Time | According to the FLSA, an employee does not always have to be productively working in order for those hours to be considered productive and therefore, not only compensable, but used to calculate hours worked for both the regular rate of pay and overtime.
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Travel Time | The reason for the travel will determine if it is compensable and added to hours worked.
Example - Fred usually works from 8am - 5 pm with a 1 hour lunch break, Monday - Friday. Fred is asked to travel to a conference in a city several hundred miles away. He travels on the Sunday prior to the conference which runs Monday to Thursday. He then stays in the conference city over the weekend and returns home on Sunday. He travels on each Sunday from 11 am to 8 pm. Fred would need to get paid from 11 am - 5 pm less 1 hour for lunch break each Sunday. So Fred would get paid for 5 hours each Sunday plus the 32 hours he attended the conference. So Fred would be compensated for 42 hours (2 hours of overtime) |
Overtime Pay Calculations
Under the FLSA, overtime pay must be paid at 150% ( 1 ½ times) of the regular rate of pay for all hours actually worked over 40 during each workweek. This is often referred to as “time and a half”.
First, let’s look at some terminology that is important to understand the formula we are considering.
Regular rate of pay: total compensation for actual time worked / total hours worked. This is the “time” part of “time and a half”.
Overtime (OT) hours: all hours actually worked over 40 in each workweek
OT premium rate: 50%, or 0.5, of the regular rate of pay. This is the “half” part of “time and a half”.
OT premium pay: OT hours x OT premium rate. This on top of the regular pay rate for hours worked over 40 in a workweek.
In order to calculate the regular rate of pay, we have to consider a few scenarios:
Shift Differentials
When an employee is paid a shift premium or differential for special hours (e.g., evening shift, night shift, weekend days), the shift differential needs to be added to the regular rate of pay before overtime is calculated
Example: Theodore is paid $10.00 per hour. When he works the evening shift, he receives an additional $0.75 per hour as a shift differential. His regular rate of pay would be $10.75 per hour rather than $10.00 for overtime purposes.
Multiple Rates of Pay
When an employee works different jobs and earns a different rate for each position, to calculate the regular rate of pay, the weighted average must be calculated.
Example - Wyatt works as a dishwasher and a prep cook at one of the local restaurants. As a dishwasher, he makes $9.00/hr and $12.50/hr as a prep cook. In one workweek, he worked 25 hours as a dishwasher and 20 hours as a prep cook.
Step | Calculation | Result |
Regular Pay | (25 hours x $9.00) + (20 hours x $12.50) | $475.00 |
Total Hours | 25 hours + 20 hours | 45 total hours |
OT Hours | 45 hours - 40 hours | 5 hours of OT |
Calculated Regular Rate of Pay | $475.00 / 45 hours | $10.56 |
Any hours worked over 40 would therefore have to be paid out at $10.56 x 1.5 = $15.84 for each of the hours worked past 40 hours.
Alternatively, the employer could have chosen to use the highest rate of pay that was paid during the corresponding workweek. In this case, $12.50, for an an OT rate of $12.50 x 1.5 = $18.75
Nondiscretionary Bonuses
Any contractual or agreed-upon bonus related to efficiency, production, attendance, quality, or any other measure of performance is considered a nondiscretionary bonus and must be included when calculating the regular rate of pay for overtime purposes. Many times, these bonuses cannot be tied to just one workweek. If this is the case, they must be evenly divided into each workweek the bonus covers and (often after regular wages have already been paid) must be added into the regular wages for the calculation of overtime.
Example: Fernando earns a quarterly production bonus of $500 for the first quarter of 2021. During one week of the quarter, she worked 44 hours and was paid $15.00/hour. A quarterly bonus would be evenly divided by 13 weeks.
Step | Calculation | Result |
Regular pay | 44 hours x $15.00 | $660.00 |
Bonus (per week) | $500.00 / 13 weeks | $38.46 |
Total weekly regular pay | $660.00 + $38.46 | $698.46 |
Calculated Regular Rate of Pay | $698.46 / 44 hours | $15.87 |
Note: Consider that the OT was performed earlier in the quarter before the bonus was paid at the end of the quarter. It would have been paid at “time and a half” which would have been $22.50/hour ($15 + the OT Premium of $7.50/hour) at the time. However, we can see that after the bonus was paid and prorated across each week in the quarter, the OT Premium would have changed from $7.50 to $15.87 / 2 = $7.94 for “time and a half” of $22.94. The employee would have to be compensated for this difference of $0.44 per hour of OT. In this case $0.44 x 4 hours = $1.76.