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Posted by Karolynn on October 23, 2015 Under | Tags: Employees, HR, Legal, Timecards

Most managers think calculating overtime is simple—just take the employee’s hourly rate and multiply by 1.5. That’s one of the most common misconceptions about wages and hours, and consequently one of the most frequent violations. Overtime is 1.5 times the “regular rate,” which is often not the same as the hourly rate.

The regular rate must include the reasonable cost of meals, lodging, and other facilities provided to the employees, nondiscretionary bonuses, on-call pay, shift differentials, and cash benefit payments from Section 125 Cafeteria Plans and other forms of compensation not specifically excluded from overtime laws by the Fair Labor Standards Act (FLSA).

There are eight narrowly construed exceptions to inclusion of payments in the regular rate:

- Gifts (The amount should not be so substantial that employees would consider it part of their wages.)
- Vacation, holiday or sick leave pay, and other similar payments not made as compensation for hours worked, production, or efficiency
- Discretionary payments or certain bona fide profit-sharing plans or talent fees
- Bona fide fringe benefits
- Premium overtime pay
- Holiday or weekend time-and-a-half premium pay
- Extra non-overtime premium pay agreed on by employment contract or by collective bargaining agreement
- Certain stock option compensation provided under an employer plan that meets the requirements of 29 USC 207 (e)(8)

**Overtime plus Additional Compensation**

The following example demonstrates the calculation of overtime for an employee who has received additional forms of compensation:

An employee with an hourly rate of $12 per hour works 45 hours in a week and also receives a $50 bonus and $50 in lodging. The employer must combine all the sources of compensation:

(45 hours x $12) + ($50 bonus) + ($50 lodging) = $640

This total divided by hours worked will provide the employee's true hourly rate for the week, $14.22, and time and a half must be calculated from this number ($14.22 x 1.5 = $21.33).

So this employee's total pay for the week would be (40 hours x $12) + (5 hours x $21.33) + ($50 bonus) + ($50 lodging) = $686.67.

**Overtime Math: How to Calculate Hourly Rate**

In general, overtime for employees not paid a straight hourly wage is figured by converting to an hourly rate as follows:

**Salaried with fixed 40-hour week. **The overtime rate is 1.5 times the rate per hour (weekly salary divided by 40) for all hours over 40 hours per week.

**Salaried with fixed week of fewer than 40 hours. **The overtime rate is 1.5 times the rate per hour (weekly salary divided by number of hours that the salary is intended to compensate) for all hours over 40 hours per week.

**Salaried with irregular week. **Employees who are paid a salary and whose hours vary from week to week receive an overtime premium calculated as follows: For each hour worked over 40, add one-half the rate per hour for that week. The rate per hour is the weekly salary divided by the actual number of hours worked in the workweek.

**Semimonthly salaries. **The salary is multiplied by 24 and divided by 52 to obtain a weekly rate. From there, you follow the weekly calculations to determine the hourly rate, which you then multiply by 1.5 for all hours over 40 hours per week.

**Monthly salaries. **The salary is multiplied by 12 and divided by 52 to obtain a weekly rate.

**Job or day rate. **If the employee is paid a flat sum for a day's work or for doing a particular job without regard to the number of hours worked, and if he or she receives no other form of compensation for services, his or her regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. The employee is then entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.

**Piecework. **When an employee is employed on a piece-rate basis, his or her regular hourly rate of pay is computed by adding together his or her total earnings for the workweek and dividing by the number of hours worked in the week. For overtime work, the pieceworker is entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.

**And You Should Also Know**

**Agreements to Waive Overtime Barred**

Employees may neither waive their right to be compensated for overtime hours worked nor agree to a lower overtime rate than that required by the Fair Labor Standards Act (FLSA). Therefore, even if employees have made such an agreement, they retain their right to recover overtime pay required by the FLSA.

**Holiday/Sick Pay Not Included **

Only hours actually worked count in the overtime calculation. Therefore, holidays not worked, vacation days, sick days, etc., are not counted. The fact that an employee receives holiday pay, vacation pay, or sick pay is of no consequence for overtime purposes. The test is hours worked rather than hours paid.

**Averaging Hours Prohibited**

Each workweek must be considered separately in determining overtime hours, regardless of the length of the pay period. Therefore, time over 40 hours worked in one week may not be offset against time under 40 hours worked in another week (except for certain arrangements permitted for hospital and nursing home employees, firefighters, and law enforcement personnel).

**Multiple Jobs Require Careful Calculations**

If an employee is working two separate jobs at different rates for the same employer, overtime is owed if the employee works a combined total of more than 40 hours in a workweek.

The overtime should be calculated based on a regular rate of pay that is the weighted average of the rates for each job. For example, if an employee works 30 hours at $10 per hour and 20 hours at $8 per hour, the weighted average is $9.20 (30 hours x $10 per hours + 20 hours x $8 per hour ÷ 50 hours). The overtime pay is $46 (.5 of $9.20 per hour x 10 hours).

Alternatively, the employer and employee may agree in advance that overtime will be paid based on the rate for the type of work that was performed during the overtime hours.

**Belo Contracts for Irregular Hours**

For employees who normally work irregular hours and are often on their own, such as field service personnel, a special form of contract arrangement for calculating overtime, known as a Belo contract, is permitted. Such contracts must do the following:

- Specify a realistic minimum hourly rate.
- Include overtime at 1.5 times that rate for all hours over 40.
- Guarantee a weekly rate regardless of the hours worked, even if less than 40.
- Cover no more than 60 hours.
- Contain a specific agreement between the employer and employee (preferably in writing).

**How to Stay on Track**

Wages and hours may seem to be the simplest thing your supervisors and managers deal with, yet it’s not as uncomplicated as it seems. From accommodation to harassment to discipline, there’s a lot to deal with and a lot that can go wrong. Training and more training are the only ways to prevent expensive mistakes.