A non-exempt employee works over forty (40) hours in one workweek. For each hour over forty, you pay the employee time and one-half.  Have you met your obligation under the Fair Labor Standards Act? The answer will depend on whether you calculated the employees’ “regular rate of pay” correctly.

Non-exempt employees are entitled to overtime pay for hours worked over 40 in a work week “at a rate of not less than one and one-half times the regular rate.” What many employers forget is that an employee’s “regular rate” includes “all remuneration for employment paid to, or on behalf of, the employee,” subject to a limited number of defined exclusions.  In other words, the “regular rate of pay” is not just the employee’s hourly rate, but also, includes certain additional payments that the employee received during the relevant time period. For instance, if an employee is paid $10.00 per hour and receives a $50.00 performance bonus promised for completing a certain task, then the $50.00 must be used to calculate the employee’s regular rate of pay. Where the $50.00 bonus was awarded for activity done in one week – it will affect only the regular rate for that particular week. However, if the bonus is earned over multiple weeks, then overtime for all of those weeks will be similarly affected.

How do you make sure that you are paying overtime correctly? First, be sure that you understand what compensation is included in the regular rate and what can be excluded. Here are some examples:

Included: Awards or bonuses for quality, quantity or efficiency, commission payments, cost of lodging and meals, lump sums for on-call payments.

Excluded: Discretionary bonuses, i.e., not promised in in advance to employees, premium payments for work over 8 hours in a day, value of stock options, holiday bonuses

Second, be sure that you are taking into consideration whether the bonus was awarded in one week or should be assessed over time.

These are very important considerations – remember, one dollar owed to a plaintiff can result in full payment of their attorneys’ fees in litigation under the FLSA. If you have questions on whether your business is properly calculating overtime, please contact me for more information.