WAGE AND HOUR: DETERMINING THE REGULAR RATE FOR HOURLY EMPLOYEES
By: Nathan Bishop
Date: October 13, 2020
Most employers must pay their employees at least the federal minimum wage, currently $7.25 per hour, and overtime pay of time-and-a-half for every hour each employee works over forty (40) hours in any week. Although the minimum wage rate is straight-forward, the requirement that employers pay time-and-a-half is not. To determine what counts toward time-and-a-half, the Fair Labor Standards Act and accompanying regulations relies on the concept of the “regular rate.”
As a general rule, the “regular rate” includes all remuneration for employment paid to, or on behalf of, the employee, divided by the number of hours that the employee worked in a week. 29 CFR 779.18. An employee must make the equivalent of one and a half times the employee’s regular rate for the overtime hours worked by that employee. Common types of pay that must be included in this regular rate and, as a result, overtime pay include: paying employees different rates for working different shifts, or shift differentials, AND paying employees nondiscretionary bonuses, such as bonuses for meeting production, safety or attendance goals
For example, if an employee works forty-eight (48) hours in a work week, earning $10.00 per hour for five (5), eight (8) hour shifts, and $10.00 plus a shift differential of $1.50 per hour for one of the eight (8) hour shifts, then the employee’s regular rate is:
Hours Worked: 48
Pay at $10.00/hr: $10.00 x 48 = $ 480.00
Pay at $1.50/hr: $1.50 X 8 = $ 12.00
Total Pay: $ 492.00
Total Pay $492.00 / 48 Hours Worked = Regular Rate of $10.25/hr
The employee’s overtime pay can then be calculated by multiplying the employee’s regular rate by .5 and multiplying that times the number of overtime hours in the week. In the above example, this means the employer should pay the employee $ 41.00 in overtime pay ($10.25 x .5 x 8), and $533.00 total for the week ($ 492.00 + $ 41.00). This is the same as if the employee was paid the regular rate for each hour worked under forty (40) hours and overtime at time and a half the employee’s regular rate. (( $ 10.25 x 40 ) + ( $ 15.375 x 8 ) = $ 533.00). People who work on wage and hour issues often refer to these methods of calculating overtime as the “half time” method and the “time and a half” method. It is accurate to describe the employee as making $ 41.00 in overtime or $ 123.00 in overtime, depending on how overtime is calculated and reported.
The regular rate is often a source of confusion for both employees and employers. Because the regular rate can cause employee’s overtime rate to fluctuate from week to week and vary wildly in how the overtime rate is presented from employer to employer, employees can be easily confused about how their overtime pay is calculated. Employers may be confused by legal subtleties such as which types of pay can be excluded from the regular rate, special rules for including payments that cannot be attributed to any particular week, and the Department of Labor’s January 2020 rule changes meant to clarify the scope of some exclusions.
The stakes can be high if an employer gets it wrong. If an employer is found to miscalculate its employee’s regular rate and underpay its employee’s overtime as a result, the Fair Labor Standards Act imposes a penalty of back pay, possible liquidated damages equal to the back pay, and attorneys’ fees for the opposing counsel. Because employers tend to adopt pay practices across their business, the likelihood that an employer will face a successful collective action for miscalculating employee’s pay is high compared to other types of alleged overtime violations.