The Fair Labor Standards (“FLSA”) is a federal law which requires certain employers to pay non-exempt employees the federal minimum wage (currently $7.25 per hour) and/or overtime at time-and-a-half for all hours worked in excess of forty (40) in a given week.
Although paying an employee overtime when he/she works over forty (40) hours in a week is a seemingly straightforward requirement, the analysis and calculation required to determine the actual amount of overtime owed is fairly complex. After determining that an employee is not exempt from the FLSA’s requirements (i.e., is entitled to overtime pay), calculating the overtime owed to the employee in each week he/she works over forty (40) hours is largely contingent upon calculating the employee’s “regular rate.”
How Do I Calculate My Regular Rate?
Pursuant to the FLSA, the regular rate is a rate per hour. However, this does not mean that an employer is required to pay an employee on an hourly rate basis. Rather, an employer may compensate an employee through a piece-rate, salary, commission, or other basis. If an employer elects to compensate an employee in a manner other than an hourly rate, then the overtime compensation due must be calculated by reducing the compensation paid to an hourly rate.
Generally, the regular hourly rate of pay is calculated by dividing an employee’s total remuneration, except statutory exceptions, received in any workweek by the total number of hours actually worked in that workweek for which the compensation was paid.
However, this general calculation is subject to adjustment and exceptions depending upon the circumstances and pay structure. For example, if an employee is employed solely on a weekly salary basis, the regular rate is calculated by dividing the salary by the hours the salary is intended to compensate, not necessarily the hours actually worked, and then overtime is calculated based on the resulting regular rate.
To illustrate, if an employee is hired at a salary of $350.00 per week and it is understood that this is intended to compensate the employee for a regular workweek of thirty-five (35) hours, the employee’s regular rate is calculated by dividing $350.00 by thirty-five (35) hours, resulting in pay at $10.00 per hour. If the employee ultimately works forty (46) hours in a certain week, then he/she is compensated at $10.00 per hour for the first forty (40) hours and then at time and a half of $15.00 for the remaining six (6) hours.
Are Bonuses Included in My Regular Rate?
The FLSA requires that all remuneration for employment, except eight (8) specified types of payments, be included in an employee’s regular rate. Certain bonuses, such as discretionary bonuses, are excluded from the regular rate calculation, whereas bonus payments that are made in addition to the regular earnings of an employee are included in the calculation. The method of
inclusion in the regular rate is largely dependent upon how the bonus is paid (i.e., on a weekly basis versus over a longer period of time).
For example, an employee is paid at an hourly rate of $12.00 per hour, receives a production bonus of $46.00 for the week, and worked a total of forty-six (46) hours in that week. The regular rate is calculated by multiplying the total hours by the rate per hour (i.e., 46 hours x $12.00), which totals $552.00. The production bonus is then added to this total (i.e., $552.00 + $46.00), bringing the total to $598.00. This total is then divided by the total hours worked (i.e., $598.00 / 46 hours), resulting in a regular rate of $13.00. The employee’s total pay for the week is finally calculated using this regular rate, bringing his/her total pay for the week to $637.00 (i.e., 40 hours x $13.00=$520.00 + [6 hours x $19.50]). Although this appears fairly simple, the calculation would be further complicated if, for example, the bonus is deferred over a period of time longer than a workweek.
Why Is It Important to Calculate My Regular Rate?
The calculation of an employee’s regular rate is crucial to compliance with the FLSA. If an employer fails to include a bonus that should be included in the regular rate and the employee is owed overtime, the employee, when receiving his/her paycheck, will ultimately receive less in overtime pay because the regular rate is lower than if the bonus had been included. An employer could then potentially be liable to the employee for failure to pay overtime in accordance with the FLSA.
Were Your Right to a Fair Wage Violated?
If you feel your rights have been violated under the FLSA or if you have any other questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Michel | King.
You can contact us either online or by calling us at (205) 319-9724. We are here to serve you.