"Hardly any business gets it a hundred percent right." Shea explained about overtime calculations. "It’s not an area of the law that’s intuitively easy to guess or understand what the correct rule is. Sometimes you just have to take it at face value in terms of what the regulations say; it’s not what you would think the rule would be."

FLSA and Overtime: Getting the Overtime Rate Right

Calculating overtime under the FLSA actually depends on several factors. In some cases you actually can use 1.5 times the employee’s hourly rate of pay, but in other cases it’s not so simple. While the following calculation—hours worked x regular rate of pay = over—seems simple enough, the regular rate and overtime rate can actually be elusive. Let’s look at some examples:

• Payment on an hourly basis. In this case, the "regular rate" is the same as the hourly rate. This one is the simple one, and overtime is paid at 1.5 times the regular rate.
• Payment at different hourly rates. What if your employee is paid at different rates for performing different kinds of work? ALL work performed for the same employer during the course of a workweek must be counted in determining whether overtime is owed. But at what rate does the overtime need to be paid? In this case, a blended overtime rate is paid.
• Payment by salary. Simply making an employee salaried does not relieve the obligation to pay overtime by default. (Take a step back and review the exempt versus non-exempt rules to understand the basics here before proceeding.) When overtime is owed to a salaried employee, you must pay it based on a "regular rate" of pay. To find out the regular rate, divide the amount of weekly salary by the number of hours it is intended to compensate.

Payment by salary can be complex as well. If the employee works variable hours, and the salary is intended to compensate for all hours worked, the regular rate and overtime rate will vary from week to week. If salary is intended to compensate only a fixed number of hours, you will need to pay extra for additional hours worked, even if employee is not into overtime by other calculations.

Even for a salary that is intended to cover all hours worked, you still may have overtime obligations, but they may be lessened in this case; you may pay for overtime hours worked at 0.5 the regular rate rather than 1.5 times the regular rate.

However, this is only permitted if:

• there is a clear, mutual understanding between the parties
• the employee’s hours fluctuate from week to week
• the employee receives a fixed salary that is not subject to deduction, regardless of the number of hours worked

Is that clear yet?

It’s easy to see how FLSA and overtime obligations can get complicated in a hurry, and this list isn’t even all-encompassing. Bottom line: you need to know which regulations apply to you and how to apply them correctly.

On top of the actual overtime rate calculation, you need to understand what needs to be included when determining the base rate – it’s not always the hourly rate at which an employee was hired. It must include:

• Commissions
• Attendance bonuses
• Productivity bonuses
• Bonuses for quality or accuracy of work
• Shift differentials
• Longevity pay
• Value of non-monetary awards (cost to employer)
• On-call pay
• Premium pay for long hours (if that premium was less than 1.5 times regular rate)

As you can see, getting your ducks in a row on FLSA and overtime obligations is complex. Don’t let a miscalculation set your organization up for penalties, fines, or costly legal entanglements!

For more information on FLSA and overtime laws, order the webinar recording. To register for a future webinar, visit http://catalog.blr.com/audio.

Attorney Kara E. Shea, a member at Miller & Martin PLLC, provides advice on issues and compliance to national, regional, and local employers of all sizes, ranging from Fortune 500 companies to small businesses in a variety of industries. She also represents employers on a variety of employment issues such as wage and hour cases, including class actions.