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 eight narrowly construed 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 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 receive an overtime premium calculated as follows: For each hour
worked over 40, add one-half the rate per hour for that week. The
rate per hour is the weekly salary divided by the actual number of
hours worked in the workweek. For example, a $400 per week employee
earns $8 per hour in a 50-hour week. Half this amount, $4, is the
overtime premium per hour. With 10 hours of overtime, the employee
receives $40 in overtime pay in addition to his or her salary.

**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.

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.