This blog post was authored by Liara Silva.
Calculating an employee’s regular rate of pay and overtime pay is no small task. The FLSA requires that an employee who works overtime be compensated at a rate of at least one and one-half times the employee’s regular rate of pay. The regular rate of pay includes “all remuneration for employment paid to, or on behalf of, the employee,” except certain payments that are specified under the FLSA. The regular rate is determined by dividing the employee’s total remuneration for employment in any work period, except exclusions, by the total number of hours that remuneration is intended to compensate. Below are four mistakes that employers should avoid when calculating the regular rate of pay as well as overtime pay. (If the following appears very complex to you, you are not alone: regular rate is one of the most technical and challenging areas of wage and hour law, and the discussion below assumes some advanced knowledge of this topic.)
Mistake 1: Using a Base Rate or “Regular Rate” Set in an Agreement
Many public employers set a base rate or “regular rate” in their collective bargaining agreements. This can lead to confusion, and should not be used as the regular rate of pay for purposes of calculating overtime. Employers and employees are not free to define or agree upon the employee’s regular rate of pay. Instead, employers must determine the regular rate of pay in accordance with the FLSA by dividing the employee’s total remuneration for employment in any work period, with the exception of specified exclusions, by the total number of hours that remuneration is intended to compensate.
Mistake 2: Using the Pay Period Rather than the Work Period
Another mistake employers should be careful to avoid is using employees’ pay periods to calculate the regular rate of pay. The regular rate should be calculated using the employee’s designated workweek or work period. Calculating the regular rate of pay using the employee’s pay period can result in the underpayment (or overpayment) of overtime.
Mistake 3: Not Calculating the Regular Rate Correctly
Under the FLSA, the regular rate is calculated by totaling all compensation earned in a work period and dividing that amount by all hours actually worked in the work period. For most employees, this means the regular rate should be calculated on a weekly basis and thus may vary from week to week. For public safety employees on Section 7(k) work periods (i.e., law enforcement or fire personnel who work subject to extended FLSA workweeks allowed by the section), the work period may be seven to twenty-eight days in length and the regular rate calculation should be calculated on the 7(k) work period basis. Many agencies fail to calculate the regular rate on a work period basis and instead calculate the rate on a pay period basis. Further, many agencies calculate the rate by dividing weekly compensation by 40 – the hours an employee is scheduled to work in the week. This calculation, while permissible, is not required by the FLSA.
Mistake 4: Omitting Payments That Must Be Included in the Regular Rate
Finally, it is easy to overlook certain payments that are required to be included in the regular rate of pay. Below is a non-exhaustive list of examples of payments that should normally be included in employers’ calculations:
- Pay for work actually performed, or for productivity or efficiency;
- Shift differentials;
- Retroactive pay adjustments;
- Educational and other incentive payments;
- Controlled standby pay;
- Payments for uncontrolled standby time;
- Hazard pay;
- Bilingual pay;
- Longevity pay;
- Special assignment pay;
- Shooting pay;
- Acting pay;
- Free meals provided to employees; and
- Merit bonuses and bonuses contained in a collective bargaining agreement.
These are only a few examples of common mistakes of which employers should be aware in order to avoid liability under the FLSA. We encourage you to contact counsel if you have any questions about calculating the regular rate of pay or overtime pay.