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June 25, 2007
OT Calculation Tips from Former Wage & Hour Chief
By Sean Dean

Tammy McCutchen says that she has been fielding questions about classifying employees as exempt or nonexempt under the Fair Labor Standards Act for the past three years, but at the Society for Human Resource Management's 59th Annual Conference and Exposition in Las Vegas, she was offering answers on another aspect of the law: calculating overtime correctly.

McCutchen was leading the Department of Labor's Wage & Hour Division when the division published final regulations revising the white collar exemptions under the Fair Labor Standard Act in 2004. She is now an attorney with the law firm Littler Mendelson and was at the conference leading a presentation that offered tips on calculating overtime. During the presentation, she was joined by Salvador Simao, another attorney at the law firm.

They began their presentation by discussing what must be included in overtime calculations and finished with exercises that tested attendees ability to calculate overtime correctly, covering the most basic calculations to the advanced.

McCutchen stressed that all "remuneration" must be included in the "regular rate" of pay for the purposes of calculating overtime, unless specifically excluded under FLSA. Types of compensation that must be included when determining the regular rate of pay include:

  • Hourly wages
  • Commissions
  • Shift differentials
  • Premium pay for hazardous work
  • Prizes and awards
  • Non-discretionary bonuses. She noted that when it comes to bonuses, the true discretionary bonus is rare.

After discussing formulas for calculating overtime, McCutchen and Simao asked attendees to complete several exercises.

In one of more basic examples, a worker earns $20 per hour on a production line in a manufacturing plant. Last week, he worked 45 hours. He was also named employee of the week and received a $50 gift certificate. They asked attendees to calculate his total pay for the week.

The first step is calculating the straight time pay (ST).

ST = Total Hours x Hourly Rate

45 hours x $20 = $900

The second step is calculating the regular rate of pay (RR).

RR = Total Compensation/Total Hours

($900 +$50)/45 hours = $21.11

The third step is to calculate the overtime pay.

OT Pay = RR x .5 x OT Hours

$21.11 x .5 X 5 OT hours = $52.78

The last step is calculating total pay.

Total Pay = ST Pay + OT Pay

$900 +52.78 = $952.78

In a more complex exercise, McCutchen and Simao presented a scenario in which an employee earns $20 per hour. Last week, the employee worked 46 hours on a first shift. The company pays a $9 per hour premium for third shift hours and a time and a half for work on Sundays. Last week, the employee also worked 5 hours on third shift. McCutchen and Simao asked attendees to calculate his total pay for the week.

ST = Total Hours x Hourly Rate

(46 hours +5 third shift hours) x $20 = $1,020

RR = Total Compensation/Total Hours

$1020 ST Pay + $45 premium pay for third-shift hours/51 hours = $20.88

OT Pay = RR x .5 x OT Hours

$20.88 x .5 X 11 = $114.84

Total Pay = ST Pay + OT Pay + Premium

$1,020 + $114.84 + $45 = $1,179.84

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