Employer Law Newsletter
Calculating Overtime Compensation
Employers are required to pay overtime compensation to any qualified, nonexempt employees who work more than 40 hours in a workweek at a rate not less than one and a half times their regular rate of pay per hour of overtime.
- The Fair Labor Standards Act (FLSA) defines the workweek as any period of 168 hours during seven consecutive 24-hour time periods. The workweek can begin on any day of the calendar week, and on any hour within that day.
- The hours worked within the workweek include all of the time that the employee is required to be on duty, on the employer's premises or at any other assigned workplace.
The employer must pay overtime to employees regardless of how they are regularly paid. Thus, whether the employee works on an hourly basis, is salaried, commission-based or receives some other form of pay, the employer is still required to pay overtime to any qualified, nonexempt employees.
In determining the rate of overtime, the employer must first determine the regular rate of pay for the employee. The regular rate is the hourly rate an employee receives during the workweek in which the employee worked more than 40 hours. Under the FLSA, the regular rate may not be less than the current minimum wage.
It is easiest for employers to determine the regular rate for employees who are paid hourly. In this situation, an employer merely needs to multiple the regular hourly rate of pay by 1.5 to determine the hourly overtime rate.
However, determining the regular rate of pay for employees who are not paid hourly can be more difficult.
- If the employee is paid piecemeal, then the employer must take the employee's total weekly earnings and divide them by the total number of hours worked in that week. This will determine the regular rate. The employee is owed half of the regular rate for each hour of overtime worked in addition to the full piecemeal amount.
- If the employee is salaried, the employer may have to use different formulas depending on how the salary is determined. For example, if the employee's salary is based on the employee working a set number of hours each week, then the employer should divide the salary by the number of hours the salary compensates the employee for to determine the regular rate. The rate of overtime is half the amount of the regular rate for each hour of overtime.
- If the employee is salaried and guaranteed a certain amount each week, no matter how many hours are worked, the overtime compensation rate can vary week to week. In this instance, the regular rate is calculated by dividing the salary for the week by the number of hours worked each week.
If employees are not paid on a weekly basis, the employer must determine what the weekly pay is prior to calculating the regular rate of pay. For assistance calculating overtime compensation and determining which employees it must be paid to, contact an employment law attorney experienced in wage and hour law.
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