For nonexempt employees, the overtime rate is 11/2 times their regular rate of pay. The regular rate must
include: the reasonable cost of meals, lodging, and other facilities
provided to the employees (NOT for the benefit of the employer), nondiscretionary
bonuses, on-call pay, shift differentials, and cash benefit payments
from Section 125 Cafeteria Plans and other forms of compensation not
specifically excluded from overtime laws by the FLSA.
There are several exceptions to inclusion of payments
in the regular rate:
• Gifts—the amount should not be so substantial that employees
would consider it part of their wages
• Vacation, holiday or sick leave pay, and other similar
payments not made as compensation for hours worked, production, or
efficiency
• Discretionary payments or certain bona fide profit-sharing
plans or talent fees
• Bona fide fringe benefits
• Premium overtime pay
• Holiday or weekend time and 1/2 premium pay
• Extra nonovertime premium pay agreed on by employment
contract or by collective bargaining agreement
• Certain stock option compensation provided under an employer
plan that meets the requirements of 29 USC 207 (e)(8)
• The cost of providing certain parking benefits, wellness
programs, on-site specialist treatment, gym access and fitness classes,
employee discounts on retail goods and services, certain tuition benefits
(whether paid to an employee, an education provider, or a student
loan program), and adoption assistance
• Payments for unused paid leave, including paid sick leave
or paid time off
• Payments of certain penalties required under state and
local scheduling laws
• Reimbursed expenses,
including cell phone plans, credentialing exam fees, organization
membership dues, and travel, even if not incurred “solely” for the
employer’s benefit (reimbursements that don’t exceed the maximum travel
reimbursement under the Federal Travel Regulation System or the optional
Internal Revenue Service (IRS) substantiation amounts for travel expenses
are per se “reasonable payments”)
• Certain sign-on bonuses and longevity bonuses
• The cost of office coffee and snacks to employees as
gifts
• Discretionary bonuses
(note that the label given a bonus does not determine whether it is
discretionary)
• Contributions to benefit plans for accident, unemployment,
legal services, or other events that could cause future financial
hardship or expense
The FLSA regulations are designed to preclude an employer
from setting an artificially low rate of pay on which overtime is
calculated and then providing additional compensation to the employee
by other means. For any payment, the employer bears the burden of
establishing that it need not be included in calculation of regular
pay.
Cafeteria plans. Under the FLSA, employer contributions to “bona fide [benefits] plans”
are not included in the regular rate. However, cash benefits payments to employees under a cafeteria plan must be included in the regular
rate for purposes of calculating overtime.
Failure to take unpaid meal
break. If an employee fails to take a 30-minute unpaid
meal break during a week when the employee works more than 40 hours,
the 30-minute break must be included when calculating overtime.
In general, overtime for employees not paid a straight
hourly wage is figured by converting to an hourly rate as follows:
Salaried with fixed 40-hour
week. The overtime rate is 11/2 times
the rate per hour (weekly salary divided by 40) for all hours over
40 hours per week.
Salaried with fixed week of
fewer than 40 hours. The overtime rate is 11/2 times the rate per hour (weekly salary
divided by number of hours that the salary is intended to compensate)
for all hours over 40 hours per week. For example, if an employee
is paid a weekly salary of $350 for a 35-hour week, the rate per hour
is $10. The employee must be paid $10 for hours 36 to 40 worked in
a week and $15 for any additional hours worked in a week. Alternatively,
the employer and employee may agree that the salary paid represents
compensation for all hours up to 40 per week. In this case, no additional
compensation would be owed for hours 36 to 40, and the overtime rate
would be the same as for an employee with a fixed 40-hour week.
Salaried with irregular week. Employees who are paid a salary and whose hours vary from week to
week may be paid based on the fluctuating workweek method (FWW). Employers
using the FWW method must meet these requirements: Nonexempt employees
must be paid on a salary basis, meaning they earn a fixed amount regardless
of the number of hours worked in a week; the employer and employees
must have a mutual understanding of the fixed salary; the fixed salary
must be high enough to at least equal the minimum wage, even during
weeks when the greatest number of hours are worked; and the employees’
hours must actually fluctuate from week to week. Under the method,
employees earn a set weekly salary even if they don’t work a full
40-hour week. Because they are nonexempt, they also must be paid a
premium if they work more than 40 hours in a week. The FLSA requires
nonexempt employees to be paid overtime at time and one-half the regular
hourly rate for any hours worked over 40 in a workweek, so an employer
must calculate how much a nonexempt salaried employee earned per hour
to determine the overtime rate. That rate is paid for all the hours
worked, giving the employees the “time” part of the overtime premium.
Then, the hourly rate is divided in half to get the “half” part the
law requires. So, an employee earning a base salary of $400 a week
makes $10 an hour for 40 hours of work. If the worker works 50 hours
in a week, that $400 base salary is divided by 50 for an hourly rate
of $8. That rate is paid for all 50 hours, and half the $8 hourly
rate is used to calculate the overtime pay for the 10 hours of overtime.
Half of $8 is multiplied by the 10 hours of overtime, so the employee’s
weekly pay plus overtime would be $440. By contrast, an employee paid
on an hourly basis at a $10-an-hour rate would earn $400 for the first
40 hours and $15 an hour for the 10 hours of overtime (time and one-half
of a $10-an-hour wage) for a total of $550 for the week.
Salary for workweek exceeding 40 hours: Nonexempt employees are often paid on a salary basis but still must
be paid overtime if they work more than 40 hours in a workweek. There
is a simple standard method for calculating the amount of overtime
owed such employees and alternate methods that reduce the amount of
overtime owed. The alternate methods have additional requirements
described below.
Standard method. If a nonexempt
employee works over 40 hours (e.g., 50 hours at a base salary of $400
per week for a 40-hour week), the standard way of calculating the
weekly pay is as follows:
• A. Divide the weekly rate by 40 ($400/40 = $10) and calculate
the week's pay as $10 x 40 plus $15 x 10 = $550.
Alternate method. However, if the
nonexempt employee is salaried, the following methods may be used:
• B. Divide the weekly salary by the actual number of hours
worked ($400/50 = $8) and calculate the week's pay as follows: $8
x 40 plus $12 x 10 = $440; or
• C. Treat the $400 as the salary for all straight-time
hours worked. Overtime could be calculated as $400 plus half-time
for hours over 40: $400 + [1/2 ($400/50)] x
10 = $440 (same result as B).
By using methods B and C, it is possible (and legal)
to avoid paying nonexempt employees standard time and one-half, based
on the employee's straight-time wages, for hours worked in excess
of 40. However, this can be done only if the employer:
• 1. Pays the employees a guaranteed salary, even if the
employee works fewer than 40 hours during a week
• 2. Keeps precise time records
• 3. Ensures that minimum wage rules are not violated
• 4. Has a written agreement with the affected employees
• 5. Refrains from deducting for certain time missed from
work, such as jury duty and fractional personal and sick days
Methods B and C are seldom used, primarily because, from
the employees' viewpoint, the calculations are difficult to understand.
Furthermore, employees may be unwilling to put in any significant
amounts of overtime and might prefer to work for organizations that
pay “normal” overtime. From the employer's viewpoint, this approach
is unpopular because of the fear that workers will abuse the guaranteed
salary.
Semimonthly salaries. The salary is multiplied by 24 and divided by 52 to obtain a weekly
rate.
Monthly salaries. The salary is multiplied by 12 and divided by 52 to obtain a weekly
rate.
Job or day rate. If the employee is paid a flat sum for a day's work or for doing
a particular job without regard to the number of hours worked, and
if he or she receives no other form of compensation for services,
his or her regular rate is determined by totaling all the sums received
at such day rates or job rates in the workweek and dividing by the
total hours actually worked. The employee is then entitled to extra
half-time pay at this rate for all hours worked in excess of 40 in
the workweek.
Piecework. When an
employee is employed on a piece-rate basis, his or her regular hourly
rate of pay is computed by adding together his or her total earnings
for the workweek and dividing by the number of hours worked in the
week. For overtime work, the pieceworker is entitled to extra half-time
pay at this rate for all hours worked in excess of 40 in the workweek.
Fixed sum for varying amounts
of overtime: A lump sum paid for work performed during
overtime hours without regard to the number of overtime hours worked
does not qualify as an overtime premium even though the amount of
money paid is equal to or greater than the sum owed on a per-hour
basis. For example, no part of a flat sum of $180 to employees who
work overtime on Sunday will qualify as an overtime premium, even
though the employees' straight-time rate is $12.00 an hour and the
employees always work less than 10 hours on Sunday. Similarly, where
an agreement provides for 6 hours' pay at $13.00 an hour regardless
of the time actually spent for work on a job performed during overtime
hours, the entire $78.00 must be included in determining the employees'
regular rate.
The following example demonstrates the calculation of
overtime for an employee who has received other forms of compensation:
An employee works 45 hours in a week and also receives a $50 bonus
and $50 in lodging. His or her regular rate of pay is $12 per hour.
The employer must combine all the sources of compensation: (45 hours
x $12) + ($50 bonus) + ($50 lodging) = $640. This total divided by
hours worked will provide the employee's true hourly rate for the
week, $14.22, and time and one-half must be calculated from this number
($14.22 x 1.5 = $21.33). So this employee's total pay for the week
would be: (40 hours x $12) + (5 hours x $21.33) + ($50 bonus) + ($50
lodging) = $686.67.
If an employee is working two separate jobs at different
rates for the same employer, overtime is owed if the employee works
a combined total of more than 40 hours in a workweek. The overtime
should be calculated based on a regular rate of pay that is the weighted
average of the rates for each job. For example, if an employee works
30 hours at $10 per hour and 20 hours at $8.00 per hour, the weighted
average is $9.20 (30 hours x $10 per hours + 20 hours x $8 per hour
÷ 50 hours). The overtime pay is $46 (1/2 of
$9.20 per hour x 10 hours). Alternatively, the employer and employee
may agree in advance that overtime will be paid based on the rate
for the type of work that was performed during the overtime hours.
Warning: Exempt salaried
employees often want to work additional hours for their employer doing
nonexempt work (such as data entry) to augment their salary. If this
work is paid on an hourly basis, the employee may no longer be exempt,
and overtime will be owed, including overtime for hours over 40 per
week that the employee works in his or her formerly exempt job. This
problem can be avoided by paying the employee a fixed salary for the
second job that does not vary from week to week based on the number
of hours worked. In addition, the hours worked in the second job must
not be so large that the employee's “primary duty” is no longer work
that qualified for the professional, administrative, or executive
exemptions.
If an employee works
for two completely independent employers at the same time, no overtime
is owed as long as the employee works no more than 40 hours for either
employer. If, however, an employee is employed jointly by two or more
employers, overtime is owed if the employee's combined hours for the
joint employers exceeds 40 in a workweek. There are two potential
scenarios where an employee may have one or more joint employers.
Scenario 1. In the first scenario, the employee has an employer who suffers,
permits, or otherwise employs the employee to work, but another individual
or entity simultaneously benefits from that work. Effective March
16, 2020, there is a 4-factor balancing test to determine whether
the potential joint employer is directly or indirectly controlling
the employee, assessing whether the potential joint employer:
• Hires or fires the employee;
• Supervises and controls
the employee’s work schedule or conditions of employment to a substantial
degree;
• Determines the employee’s
rate and method of payment; and
• Maintains the employee’s
employment records.
Whether a person is a
joint employer will depend on all the facts in a particular case,
and the appropriate weight to give each factor will vary depending
on the circumstances. However, the potential joint employer’s maintenance
of the employee’s employment records alone will not lead to a finding
of joint employer status. Additional factors may also be relevant
in determining whether another person is a joint employer in this
situation, but only when they show whether the potential joint employer
is exercising significant control over the terms and conditions of
the employee’s work.
There are several factors
that are not relevant to the determination of
FLSA joint employer status. For example, whether the employee is economically
dependent on the potential joint employer, including factors traditionally
used to establish whether a particular worker is a bona fide independent
contractor (e.g., the worker’s opportunity for profit or loss, their
investment in equipment and materials, etc.), are not relevant to
determine joint employer liability. In addition, other factors that
do not make joint employer status more or less
likely include:
• Operating as a franchisor
or entering into a brand and supply agreement, or using a similar
business model;
• The potential joint employer’s
contractual agreements with the employer requiring the employer to
comply with its legal obligations or to meet certain standards to
protect the health or safety of its employees or the public;
• The potential joint employer’s
contractual agreements with the employer requiring quality control
standards to ensure the consistent quality of the work product, brand,
or business reputation; and
• The potential joint employer’s
practice of providing the employer with a sample employee handbook
or other forms, allowing the employer to operate a business on its
premises (including “store within a store” arrangements), offering
an association health plan or association retirement plan to the employer
or participating in such a plan with the employer, jointly participating
in an apprenticeship program with the employer, or any other similar
business practice.
Scenario 2. In the second scenario, one employer employs an employee for one
set of hours in a workweek, and another employer employs the same
employee for a separate set of hours in the same workweek. If the
employers are acting independently of each other and are disassociated
with respect to the employment of the employee, each employer may
disregard all work performed by the employee for the other employer
in determining its liability under the FLSA. However, if the employers
are sufficiently associated with respect to the employment of the
employee, they are joint employers and must aggregate the hours worked
for each for purposes of determining if they are in compliance. The
employers will generally be sufficiently associated if there is an
arrangement between them to share the employee’s services, the employer
is acting directly or indirectly in the interest of the other employer
in relation to the employee, or they share control of the employee,
directly or indirectly, by reason of the fact that one employer controls,
is controlled by, or is under common control with the other employer.
Only hours actually worked count in the overtime calculation.
Therefore, holidays not worked, vacation days, sick days, etc., are
not counted. The fact that an employee receives holiday pay, vacation
pay, or sick pay is of no consequence for overtime purposes. The test
is hours worked rather than hours paid.