Most payroll errors involving overtime start from one wrong assumption: that the overtime pay calculation is the employee's hourly rate times 1.5. Under the Fair Labor Standards Act it isn't. Overtime is one and one-half times the employee's regular rate, and that rate is a weighted average recomputed for every single workweek. It moves when a bonus lands, when someone works two jobs at two rates, when a shift differential kicks in. Get it wrong and every overtime hour in that week is wrong with it.
What the FLSA requires of every overtime pay calculation
Unless specifically exempted, covered employees must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay (U.S. Department of Labor, Fact Sheet #23, revised October 2019). Four structural rules follow:
- The workweek is the unit. A workweek is a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods. It need not match the calendar week and may begin on any day, at any hour (DOL Fact Sheet #23).
- You cannot average across weeks. Averaging of hours over two or more weeks is not permitted (DOL Fact Sheet #23). Work 50 hours one week and 30 the next and you owe 10 overtime hours, even though the biweekly total is 80.
- Weekends and holidays are not automatically overtime. The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such (DOL Fact Sheet #23).
- The regular rate has a floor and cannot be waived. It cannot fall below the minimum wage — federally $7.25 per hour for covered nonexempt employees (DOL, Minimum Wage topic page), with the higher of state or federal controlling. Nor may the overtime requirement be waived by agreement, and announcing that unauthorized overtime will not be paid does not impair the right to compensation for overtime hours actually worked (DOL Fact Sheet #23).
State law can be stricter; some states add daily or seventh-consecutive-day overtime. Treat the FLSA as the minimum, not the whole answer.
The regular rate is a weighted average, not the base rate
DOL states the formula plainly: total compensation in the workweek, except the statutory exclusions, divided by total hours worked in the workweek equals that week's regular rate (DOL Fact Sheet #56A, December 2019).
That division is why the regular rate is so often not the number on the offer letter. Earnings may be determined on a piece-rate, salary, commission, or other basis, but overtime is always computed from the average hourly rate derived from those earnings. And where an employee works at two or more different types of work for which different straight-time rates have been established in one workweek, the regular rate for that week is the weighted average of those rates: earnings from all the rates added together, then divided by the total hours worked at all jobs (DOL Fact Sheet #23).
One narrow alternative exists: section 7(g)(2) permits, under specified conditions at 29 C.F.R. 778.415 through 778.421, overtime at one and one-half the rate in effect when the overtime work is performed (DOL Fact Sheet #23).
What must be included
- Shift differentials
- Nondiscretionary bonuses. Production bonuses set by a predetermined formula, quality-and-accuracy bonuses, bonuses announced to induce more efficient work, attendance bonuses, and safety bonuses all belong in the regular rate (DOL Fact Sheet #56C, December 2019)
- Piece-rate and commission earnings
- Non-cash payments in goods or facilities, at the employer's reasonable cost or the fair value (DOL Fact Sheet #23)
What may be excluded
The statute at 29 U.S.C. 207(e) provides an exhaustive list of excludable payments (DOL Fact Sheet #56A). Among them: gifts on special occasions; pay for occasional periods when no work is performed due to vacation, holidays, or illness, including leave buy-backs; reimbursed business expenses; infrequent and sporadic show-up pay; non-prearranged call-back pay; genuinely discretionary bonuses; bona fide profit-sharing plans; employer contributions to benefit plans; and certain premium payments for non-FLSA overtime.
Two traps live in that list. First, a bonus is discretionary only if both the decision to pay it and its amount stay at the employer's sole discretion until at or near the end of the corresponding period, and it is not paid under any prior contract, agreement, or promise causing employees to expect it regularly. The label on a bonus does not settle the question (DOL Fact Sheet #56C). Second, unless specifically noted, excluded payments may not be credited toward overtime compensation due under the FLSA (DOL Fact Sheet #56A).
A worked overtime pay calculation: two rates plus a bonus
Say a nonexempt employee works one workweek for one employer in two roles:
- 25 hours installing at $24.00 per hour
- 20 hours in the warehouse at $18.00 per hour
- A $75.00 production bonus promised in advance, so nondiscretionary
- A $50.00 on-the-spot bonus, not preannounced and entirely the employer's call, so discretionary
DOL's three-step method (Fact Sheet #56C) runs like this.
Step 1: includable compensation divided by total hours equals the regular rate.
- 25 hours at $24.00 = $600.00
- 20 hours at $18.00 = $360.00
- Straight-time earnings: $960.00
- Plus the $75.00 nondiscretionary bonus: $1,035.00
- $1,035.00 divided by 45 hours = $23.00 regular rate
Step 2: regular rate times 0.5 equals the half-time premium. $23.00 x 0.5 = $11.50.
Step 3: half-time premium times overtime hours. $11.50 x 5 overtime hours = $57.50 of overtime pay due.
Total: $1,035.00 + $57.50 = $1,092.50, plus the $50.00 discretionary bonus, which stays out of the regular rate but is still paid, for $1,142.50.
The half-time step is where people balk, because it looks like an undercount. It isn't: Step 1 already paid straight time for all 45 hours, so only the extra half remains. Run it the long way and you land in the same place — 40 hours at $23.00 = $920.00 plus 5 at $34.50 = $172.50, total $1,092.50.
Now look at what the bonus did. Leave the $75.00 out and the regular rate falls to $960.00 divided by 45 = $21.33, the premium to $10.67, overtime due to $53.33 — a $4.17 shortfall in one week for one employee. Across a crew and a quarter, that stops being rounding error. And a bonus covering more than one workweek cannot simply be dropped into the week it was handed out; the regular-rate regulations at 29 C.F.R. 778.200 through 778.225 govern such payments (DOL Fact Sheet #56A).
Salaried nonexempt employees
A fixed salary for a regular workweek longer than 40 hours does not discharge the FLSA obligation. DOL's own example: an employee hired for a 45-hour workweek at a weekly salary of $405 has a regular rate of $405 divided by 45 = $9.00, and is still due one-half that rate for the 5 overtime hours, or $4.50 x 5 = $22.50. Relatedly, a lump sum paid for overtime work without regard to the number of overtime hours worked is not an overtime premium at all, even if it equals or exceeds what was owed (DOL Fact Sheet #23).
This is general information, not tax or legal advice.
Where the overtime pay calculation shows up on the pay statement
The FLSA's recordkeeping rules expect an employer to have, for each nonexempt worker, the basis on which wages are paid, the regular hourly pay rate, total straight-time earnings, total overtime earnings for the workweek, all additions and deductions, total wages per pay period, and the payment date with the period covered. As DOL puts it, the law requires this information to be accurate (DOL Fact Sheet #21, revised July 2008). Payroll records must be kept at least three years; the records wage computations rest on, such as time cards and wage rate tables, two.
A pay statement that breaks straight-time earnings out from the overtime premium, showing the hours and rates behind each, is what makes those figures reviewable months later — by your accountant, or by the employee asking a fair question about a short check.
UWageCo generates that payroll statement from the figures you supply: hours, rates, bonuses, deductions. It computes federal withholding using IRS Publication 15-T plus FICA, and state withholding from each state's own published formulas, at $27.54 per statement with no subscription. UWageCo prepares documents; you file your own returns. Every statement carries a disclosure noting the information was supplied by the customer and not independently verified.