Regular Rate of Pay
Definition, rules and examples

Overtime under the Fair Labor Standards Act is not simply 1.5 times the base wage. It is 1.5 times the regular rate. For many hourly employees with extra pay, such as bonuses or shift differentials, the regular rate is higher than the posted wage. Employers that miss this difference may underpay overtime without realizing it.

How the regular rate works

The Department of Labor's Fact Sheet #56A explains that the regular rate includes "all remuneration for employment paid to, or on behalf of, the employee," and that overtime is computed on "the average hourly rate derived from such earnings." In practice:

1. Add up all pay for the workweek that counts as compensation for work.
2. Subtract any payments that are excludable under the law.
3. Divide by the total hours actually worked that workweek.
4. Pay an additional half of that rate for each overtime hour (straight time for all hours has already been counted in step 1).

Worked example with a differential and a bonus

Sam is a non-exempt production worker paid $15.00 per hour. Sam's employer pays a $2.00 per hour night differential and a promised $45.00 weekly attendance bonus. This week Sam worked 45 hours, 20 of them on nights.

If the employer had used only the $15.00 base wage, the overtime premium would have been 5 x $7.50 = $37.50, for total pay of $797.50, which is $4.72 short. Small per-week gaps like this add up across a workforce and over time. Try your own numbers with the overtime calculator.

What is included and excluded

According to Fact Sheet #56A, "all compensation for hours worked, services rendered, or performance must be included in the regular rate." The Department of Labor's bonus fact sheet adds that "nondiscretionary bonuses are included in the regular rate of pay," with examples such as bonuses based on output formulas, attendance, quality and accuracy, or safety records.

Fact Sheet #56A lists categories that may be excluded, including:

• Gifts not measured by hours worked, production, or efficiency.
• Pay for time not worked, such as paid vacation, holidays, sick leave, and buy-backs of unused leave.
• Reimbursed business expenses, such as supplies, travel, or cell phone plans.
• Show-up pay paid on an infrequent and sporadic basis, and call-back pay when the call-back was not prearranged.
• Certain perks with no connection to hours worked or performance, such as gym access or tuition payments.
• Discretionary bonuses, only when both the fact and amount of payment are at the employer's sole discretion and not paid under a prior contract, agreement, or promise.
• Certain premium payments for hours over 8 in a day, over 40 in a week, or for weekend or holiday work, under specified conditions, and certain benefit plan contributions.

The fact sheet also says the regular rate cannot be lower than the federal minimum wage or any higher applicable state or local minimum wage.

Employees paid more than one way

For employees paid by piece rate, salary, or commission, the Department of Labor's overtime fact sheet says the regular rate is found by dividing total pay, minus statutory exclusions, by total hours actually worked in the workweek. The same averaging approach shown in the example above applies when an hourly employee earns different amounts for different hours in the same week.

Best practices

• Classify every pay code. Decide whether each earning type (bonus, differential, stipend, reimbursement) is included in or excluded from the regular rate, and document why.
• Be careful with "discretionary" labels. A bonus announced in advance to encourage attendance or productivity is generally nondiscretionary, whatever it is called.
• Allocate bonuses that cover more than one week. When a monthly or quarterly bonus is earned across several workweeks, the overtime effect may need to be recalculated for those weeks.
• Keep hours data clean. The regular rate divides by actual hours worked, so missing or incorrect punches change the result.

Common mistakes

• Calculating overtime on the base wage when the employee earned a differential.
• Excluding attendance, safety, or production bonuses that were promised in advance.
• Including PTO hours in the hours-worked denominator, which can lower the regular rate.
• Forgetting that a state or local minimum wage can set the floor for the regular rate.

Regular rate checklist for payroll

Before each payroll run, a short review helps catch regular-rate errors:

1. Did any non-exempt employee work more than 40 hours in any single workweek in the period?
2. Did those employees receive any differential, stipend, or bonus tied to hours, attendance, production, quality, or safety?
3. Are PTO, holiday, and sick hours coded separately from hours worked, so they do not change the divisor?
4. Are expense reimbursements coded so they stay out of the regular rate?
5. Does the resulting regular rate meet or exceed the applicable federal, state, or local minimum wage?

Running through these questions each period takes minutes and is far easier than recalculating months of overtime later.

How EZTime helps

An accurate regular rate starts with accurate hours. EZTime records time through a GPS mobile time clock with geofencing, NFC tags, a tablet kiosk, and biometric clocks, and separates worked time from PTO and absences through built-in PTO and absence management. Overtime and break alerts warn managers before hours run long, and timecard corrections keep an audit trail of every change. Payroll-ready Excel and PDF exports go to any payroll software, which applies your pay rules; EZTime does not run payroll. Plans start at $2 per employee per month with a 14-day trial. See the attendance clock and pricing.

This is general information, not legal advice.