For nonexempt employees, the overtime rate is 1^{1}/_{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 1^{1}/_{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 1^{1}/_{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 the employee receives no other form of compensation for services,
the 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, the regular hourly rate
of pay is computed by adding together the 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. The 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/regular rate for the week—$14.22.
To calculate the proper overtime compensation owed to the employee,
the employer would need to multiply the true hourly/regular rate of
$14.22 for the week by .5. Employers must keep in mind when calculating
overtime for employees who have received other forms of compensation
that the true hourly rate needs to be multiplied by .5 and not 1.5.
Straight-time earnings have already been calculated for all hours
worked, so the additional amount to be calculated for each overtime
hour worked (i.e., the overtime premium pay) is one-half the regular
rate of pay:

**$14.22 **regular rate x **0.5 x 5 **overtime hours = **$35.55 **additional
half-time pay.

After the additional half-time pay has been calculated,
the employer must then add the additional half-time pay and the straight-time
earnings to calculate the total amount of compensation owed to the
employee for the pay period:

**$640.00 **straight-time earnings + **$35.55 **additional half-time earnings = **$675.55 **total compensation owed to employee.

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 the 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.

Employers are required to include commission payments
when calculating a non-exempt commissioned employee’s regular rate
of pay for the purposes of computing overtime.

**Weekly commissions. **Commissions
earned on a weekly basis must be added to the employee’s other compensation
earned (if any) for each workweek. The regular rate is calculated
by dividing the workweek total amount of compensation plus commission
by the total number of hours worked in the workweek. The employee
is entitled to one half of their regular rate for each hour worked
during overtime (in excess of 40 hours per workweek).

*Example. *A commissioned employee earns $8.00 per
hour working 50 hours for one workweek and receives $200.00 in commissions
during that workweek. The employee’s regular rate would be calculated
as follows:

$8.00 per hour multiplied by 50 hours worked = $400 +
$200 in commissions for the workweek = $600/50 hours = $12.00 per
hour

This employee worked 10 overtime hours during this particular
workweek, so they are also entitled to overtime pay, which is calculated
by dividing the regular rate in half, then multiplying by the number
of overtime hours:

$12.00 per hour regular rate divided in half = $6.00 x
10 overtime hours = $60.00 in overtime pay.