How to Properly Calculate FLSA Overtime Pay

The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards for most private and public sector employees. Under the FLSA, eligible employees must receive overtime pay at a rate of at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek.

Accurately calculating FLSA overtime pay is essential for both employers and employees. The process involves correctly identifying what constitutes the “regular rate of pay” and “hours worked,” as these elements form the foundation of the overtime calculation. Errors in these initial steps can lead to significant discrepancies in an employee’s total compensation and potential compliance issues.

Understanding the Regular Rate of Pay

The “regular rate of pay” is a foundational concept in FLSA overtime calculations, often misunderstood as simply an employee’s hourly wage. It is a comprehensive figure that includes nearly all forms of compensation an employee receives for their employment. This broader definition ensures that overtime pay reflects an employee’s true average hourly earnings.

Payments included in the regular rate are:
Hourly wages
Non-discretionary bonuses, such as those promised for meeting production targets, sales goals, or attendance incentives.
Commissions earned by employees, as they are direct compensation tied to work performed.
Shift differentials, which are extra payments for working less desirable shifts like evenings or nights.
Payments for on-call time, especially when an employee’s freedom is restricted while waiting to be called to duty.
Compensation for duties performed during meal periods.

Certain payments can be excluded from the regular rate calculation:
Gifts and payments made in the nature of gifts, particularly on special occasions or as a reward for service, if they are not tied to hours worked, production, or efficiency.
Reimbursements for expenses incurred on the employer’s behalf, such as travel costs or supplies, as they are not considered compensation for work performed.
Discretionary bonuses, where both the decision to pay and the amount are at the employer’s sole discretion until shortly before payment, with no prior contract or promise.
Payments for periods when no work is performed (e.g., vacation, holiday, sick leave).
True premium payments for working weekends, holidays, or for working more than 40 hours in a week, as these are already considered overtime premiums or special pay arrangements.
Employer contributions to bona fide benefit plans (e.g., retirement, health insurance), provided certain conditions are met.

Determining Hours Worked

Accurately identifying “hours worked” is a fundamental step in calculating FLSA overtime, as it defines the total time for which an employee must be compensated. Hours worked generally encompass all time an employee is required to be on duty, on the employer’s premises, or at a prescribed workplace. This includes time when an employer allows or requires work, even if not formally requested.

Waiting Time

If an employee is “engaged to wait” (waiting for work while on duty and unable to use the time for personal pursuits), that time counts as hours worked. An example would be a receptionist reading a book while waiting for calls. “Waiting to be engaged” (off duty and free for personal activities) generally does not count.

On-Call Time

If an employee must remain on the employer’s premises or is so restricted they cannot use the time for their own purposes, on-call time is considered hours worked. If an employee is free to pursue personal activities at home and can simply be reached by phone, that time is typically not compensable unless restrictions are severe.

Travel Time

Ordinary home-to-work commuting is generally not compensable.
Travel during the workday (e.g., moving between job sites) is considered hours worked.
Special one-day assignments in another city where an employee returns home the same day may also count as hours worked, excluding normal commuting time.
Travel that keeps an employee away from home overnight is compensable if it cuts across the employee’s regular workday.

Meal and Rest Periods

Short rest periods (5-20 minutes) are generally compensable and must be counted as hours worked. Bona fide meal periods (30 minutes or longer) are generally not compensable if the employee is completely relieved from duty. If an employee is required to perform any duties, active or inactive, during a meal period, that time is compensable.

Training Time

Training time generally counts as hours worked unless specific criteria are met:
Attendance is outside normal working hours.
Attendance is truly voluntary.
Training is not directly related to the employee’s job.
No productive work is performed during the training.

If any of these conditions are not met, the training time typically must be compensated.

Calculating Overtime Pay

Once the regular rate of pay and total hours worked for a workweek have been accurately determined, the calculation of FLSA overtime pay becomes a sequential process.

Step 1: Determine Total Regular Earnings

Sum all compensable earnings for the workweek, including hourly wages, non-discretionary bonuses, and commissions. For instance, if an employee earns an hourly wage of $15 and a non-discretionary production bonus of $50 in a week, both amounts contribute to the total regular earnings.

Step 2: Calculate the Regular Rate of Pay

Divide the total regular earnings (from Step 1) by the total number of hours worked in the workweek. This total includes both regular and any overtime hours. For example, if an employee worked 45 hours and earned $700 in regular earnings, the regular rate would be $700 divided by 45 hours, equaling approximately $15.56 per hour.

Step 3: Identify Overtime Hours

Under the FLSA, any hours worked over 40 in a single workweek are considered overtime hours. So, if an employee worked 45 hours, 5 hours would be designated as overtime.

Step 4: Calculate Overtime Premium Pay

This is the additional half-time pay owed for overtime hours. It is calculated by multiplying the overtime hours (from Step 3) by half of the regular rate of pay (from Step 2). Using the previous example, with a regular rate of $15.56, the additional half-time pay would be $15.56 multiplied by 0.5, resulting in approximately $7.78 per hour. This $7.78 is then multiplied by the 5 overtime hours, yielding an overtime premium pay of $38.90. This premium is in addition to the straight-time pay already included in the regular earnings.

Step 5: Calculate Total Weekly Pay

Add the total regular earnings (from Step 1) to the overtime premium pay (from Step 4). In our ongoing example, the total weekly pay would be $700 (regular earnings) plus $38.90 (overtime premium), totaling $738.90.