The Method of Calculating Overtime Pay

Most workers who work more than 40 hours a week think that they will be paid for their overtime work at the rate of one and a half times their hourly wage. But many employees may work at different hourly rates, receive bonuses, and receive fringe benefits, all of which may affect how overtime pay is calculated.

Overtime work is legislated by the Fair Labor Standards Act (FLSA) [Title 29, United States Code, Chapter 8], and the regulations governing the application of the law are contained in the Code of Federal Regulations (CFR). An examination of the Code will help clarify the proper method of calculating overtime pay.

The regulations covering overtime are found in Part 778 of Title 29 of the CFR. Regarding overtime the Code states: “It [the FLSA] prescribes the maximum weekly hours of work permitted for the employment law attorneys of such employees in any workweek without extra compensation for overtime, and a general overtime rate of pay not less than one and one-half times the employee’s regular rate which the employee must receive for all hours worked in any workweek in excess of the applicable maximum hours.” [29 CFR 778.100]

The “maximum weekly hours of work permitted” is set as 40 hours per workweek. [29 CFR 778.101] Hours of work do not include vacations, holidays and sick leave for which an employee has been paid, but did not work to receive. For instance, if an employee receives pay for 48 hours that included 8 hours for a holiday, he only worked 40 hours and is not entitled to overtime pay under the law.

“An employee’s workweek is a fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods. It need not coincide with the calendar week but may begin on any day and at any hour of the day.” [29 CFR 778.105] For instance, an employee’s workweek may be Monday to Sunday, Sunday to Saturday, or Wednesday to Tuesday.

It is important to make a distinction between an employee’s workweek and the payroll period. The payroll period refers to how often an employee is paid, such as weekly, biweekly, semi-monthly, or monthly. For instance, an employee may be paid biweekly. He may work 80 hours in that two-week period (an average of 40 hours per week), but if he works 32 hours in one workweek and 48 hours in the other workweek, he is entitled to overtime pay for the additional 8 hours in the second week.

The regular rate of pay is probably the most important concept in overtime pay calculations. “The regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid.” [29 CFR 778.109] It is an hourly rate of pay.

Besides gross wages calculating overtime pay at an hourly rate, what may be included in the employee’s remuneration? Some of the most common forms of compensation that must be included are non discretionary bonuses, commissions, and housing provided to workers. Non discretionary bonuses are bonuses that an employee receives because of meeting certain goals. (Discretionary bonuses are amounts given to an employee at the discretion of the employer, and the amount is not based on any specific criterion.)