Correctly Calculating the FLSA Regular Rate - A Common Pitfall of the FLSA
By Chelsea Betcher - McMahon Berger P.C.
November 23, 2021
The Fair Labor Standards Act (“FLSA”) mandates that non-exempt employees be paid one and one-half times their regular rate for all hours worked over forty (40) in a given workweek. However, calculating overtime pay correctly can be tricky when an employee works at two or more different rates during a single workweek. It is important for employers to ensure they are correctly compensating employees who work at multiple pay rates.
The Secretary of Labor’s FLSA regulations – 29 C.F.R. § 778.115 – address the question of how to correctly calculate the regular rate when an employee is paid two different rates of pay in a single workweek:
Where an employee in a single workweek works at two or more different types of work for which different non-overtime rates of pay have been established, his regular rate for that week is the weighted average of such rates. That is, his total earnings (except statutory exclusions) are computed to include his compensation during the workweek from all such rates and are then divided by the total number of hours worked at all jobs.
This language can be overwhelming and difficult to decipher for some employers because it reveals that the “regular rate” for employees who work for two different rates of pay will change from week to week depending on the number of hours worked at each different rate. Below is a definition of terms and a step-by-step approach to determining the regular rate in workweeks where more than one rate of pay is used.
“Workweek”: For purposes of the FLSA, a “workweek” is a fixed and recurring period of seven (7) days. Every employer is required to establish a set “workweek” for purposes of calculating overtime. While many employers operate a semi-monthly or bi-weekly payroll, the FLSA does not permit averaging hours worked over two or more workweeks. In other words, no matter when an employer issues paychecks, overtime needs to be calculated on a workweek (7-day) basis.
“Hours worked at all jobs”: The FLSA defines “hours worked” as all the time an employee is suffered or permitted to work. More specifically, “hours worked” includes all times an employee must be on duty or on the employer’s premises or any other prescribed place of work. “Hours worked” generally includes waiting time, on-call time, and some travel time. On the other hand, rest periods, meal periods, and time spent traveling between home and work are typically not considered compensable and need not be counted toward hours worked.
“Regular rate”: The regular rate is defined as all remuneration for employment paid to, or on behalf of, the employee divided by the total number of hours worked during that week. When employees have different rates of pay, this calculation can be difficult to determine, but applying the following step-by-step example can help:
Step 1 – Calculate Straight Pay from Shift or Job A: Multiply the total hours worked for shift or job A by the hourly rate for that shift or job.
Step 2 – Calculate Straight Pay from Shift or Job B: Multiply the total hours worked for shift or job B by the hourly rate that shift or job.
Step 3 – Calculate the Total Compensation: Add the product in Steps 1 and 2. Additionally, add in any other compensation received during this week. (This could include certain types of bonuses or shift differential payments. It does not include vacation or holiday pay when the employee is not actually working. FLSA Section 207(e) provides types of compensation that employers may exclude from an employee’s regular rate of pay).
Step 4 – Calculate the Regular Rate: Divide the Total Compensation from Step 3 by the total hours worked. This is the “regular rate” for this employee for this workweek. It is also sometimes referred to as the “weighted average” or “blended rate.”
Step 5 – Calculate Overtime Pay: Multiply the Regular Rate determined in Step 4 by .5 (one-half) and multiply that number by the number of hours worked over forty (40). For example, if the employee worked forty-five (45) total hours in a workweek: Overtime Pay = Regular Rate x .5 x 5 overtime hours.
Step 6 – Determine Total Gross Pay: Add the Total Compensation in Step 3 to the Overtime Pay in Step 5 to determine the total amount of payment the employee should receive (before taxes and other authorized deductions) for the workweek.
Employers should also be mindful that the regular rate may never be less than the minimum wage required by the FLSA. Following the steps outlined above will help employers avoid liability for potential FLSA violations. In many cases, it can also save employers money by not paying employees who work at different rates of pay more than is required by law.
It also is important to keep in mind that the foregoing is a summary of what is permitted under the FLSA. State and local laws may have different requirements and procedures for calculating the regular rate.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.