Overtime Compensation Under the

Fair Labor Standards Act

U.S. Department of Labor

Employment Standards Administration

Wage and Hour Division

WH Publication 1325

Revised April 1985
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pay standards and regulates the employment of minors, there are a number of

employment practices which the Act does not regulate. For example, the Act

does not require:

vacation, holiday, severance, or sick pay ---

meal or rest periods, holidays off, or vacations

premium pay for weekend or holiday work

pay raises or fringe benefits

---

---

---

a discharge notice, reason for discharge, or immediate payment of final

wages to terminated employees

---

any limit on the number of hours of work for persons 16 years of age

and over

---

These and similar matters are determined by agreement between the employer

and the employees or their authorized representatives.

This publication is for general information and

is not to be considered in the same light as

official statements of position contained in

Interpretative Bulletins and in opinion letters

of the Wage and Hour Administrator.
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including employees of state and local governments. The Act is

administered by the U.S. Department of Labor's Wage and Hour Division.

If you have specific questions about the Act's requirements, contact

the Wage and Hour Division's nearest office. Offices are listed in

the telephone directory under Department of Labor in the U.S.

Government listing.

THE OVERTIME PAY REQUIREMENTS

Unless specifically exempted, employees covered by the Act must receive

overtime pay for hours worked in excess of 40 at a rate not less than

time and one-half their regular rates of pay. There is no limitation

in the Act on the number of hours employees may work in any workweek.

They may work as many hours a week as they and their employer see fit,

as long as they are paid in accordance with the Act's requirements.

The Act does not require overtime pay for hours in excess of eight per

day (there is one exception) or for work on Saturdays, Sundays, holidays,

or regular days of rest as such, although many companies do pay overtime

for such hours.

Each Workweek Stands Alone: The Act takes a single workweek as its

standard and does not permit averaging of hours over two or more weeks.

For example, an employee who works 30 hours one week and 50 hours the

next, must receive overtime pay for the hours worked beyond 40 in the

second week, even though the average number of hours worked in the two

weeks is 40 (except for certain employees of hospitals, residential care

establishments, fire fighters, and police officers) This is true

regardless of whether the employee works on a standard or swingshift

schedule and regardless of whether payment is on a daily, weekly, biweekly, monthly, or other basis. This rule also applies to employees

paid on a piecework basis or commission.

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paid weekly. The general rule is that overtime pay earned in a particular

workweek must be paid on the regular pay day for the period in which the

workweek ends. If the correct amount of overtime pay cannot be determined

until some time after the regular pay period, the employer must pay

the overtime compensation as soon after the regular pay period as practicable.

Payment may not be delayed for a period longer than is reasonably necessary

for the employer to compute and arrange for payment and in no event may

payment be delayed beyond the next pay day after such computation can be

made.

REGULAR RATE OF PAY

Before overtime pay can be computed it is necessary to determine the

employee's regular rate, since the Act requires payment for overtime

hours at not less than one and one-half times the regular rate of pay.

The regular rate may be more than the statutory minimum (currently $2.90

an hour) but it cannot be less. (On January 1, 1980, the minimum wage

increases to $3.10 per hour and on January 1, 1981 to $3.35 per hour.)

The regular rate includes all remuneration for employment except for

certain payments excluded by the law itself. Payments which are not part

of the regular rate include reimbursement for expenses incurred on the

employer's behalf, premium payments for overtime work and the premium

portion that is not less than time and one-half the regular rate paid

for work on Saturdays, Sundays, and holidays; discretionary bonuses,

gifts and payments in the nature of gifts on special occasions; and

payments for occasional periods when no work is performed due to

vacation, holidays, or illness.

The Regular Rate is a Rate Per Hour: The Act does not require employers

to pay employees on an hourly rate basis. Their earnings may be determined

on a piece-rate, salary, commission, or some other basis, but in such case

the overtime pay due must be computed on the basis of the hourly rate

derived from such earnings. The regular hourly rate of pay of an employee

is determined by dividing the total remuneration for employment (except

the statutory exclusions) in any workweek by, the total number of hours

actually worked in the workweek. A few examples will illustrate the

application of this principle in particular instances:

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b. Hourly Rate and Bonus: If the employee in example (a) received

in addition to the earnings at the hourly rate, a bonus of $9.20, the

regular rate of pay would be $4.20 an hour (46 hours at $4.00 equals

$184.00 plus the $9.20 bonus, making a total of $193.20; this total

divided by 46 hours yields a rate of $4.20). The employee would then

be entitled to receive a total wage of $205.80 for 46 hours (46 hours

at $4.20 plus 6 hours at $2.10).

C. Pieceworker: When an employee is employed on a piece-rate basis

(so much per piece, dozen, gross, etc.) the regular rate of pay is

computed by adding together the total earnings for the workweek from

piece rates and all other earnings (such as bonuses) and any sums

paid for waiting time or other hours worked. This sum is then divided

by the number of hours worked in that week to yield the piece worker's

"regular rate" for that week. For the overtime work the piece worker

is entitled to be paid, in addition to the total straight-time weekly

earnings, one-half this regular rate for each hour over 40 in the

workweek. Since the employee has already received straight-time

compensation for all hours worked, only additional half-time pay is

required. Thus, if the employee has worked 50 hours and has earned

$205.00 at piece rates for 46 hours of productive work and in addition

has been paid at $4.00 an hour for 4 hours of waiting time, the total

compensation of $221.00 must be divided by the total hours of work; 50,

to arrive at the regular hourly rate of pay -- $4.42. For the 10 hours

of overtime the employee is entitled to additional compensation of $22.10

(10 hours at $2.21). For the week's work the employee is entitled to a

total of $243.10 (40 hours at $4.42 plus 10 overtime hours at $6.63).

d. Day Rates and Job Rates: An employee may be paid a flat sum for a

day's work or for doing a particular job, without regard to the number

of hours worked in the day or at the job, and receive no other form of

compensation. In such a case the employee's regular rate is found 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 over 40 in the workweek.

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hour week, the regular rate is $4.10 an hour.

Salary for Periods Other than a Workweek: Where the salary covers a

period longer than a workweek, such as a month, it must be reduced to

its workweek equivalent. A monthly salary can be converted to its

equivalent weekly wage by multiplying by 12 (the number of months) and

dividing by 52 (the number of weeks). A semi-monthly salary is converted

to its equivalent weekly wage by multiplying by 24 and dividing by 52.

Fixed Salary for Fluctuating Hours: The regular rate of an employee

whose hours of work fluctuate from week to week, who is paid a stipuated

salary with the clear understanding that it constitutes straight time

pay for all hours worked, whatever their number and whether few or many,

will vary from week to week. The regular rate is obtained for each week

by dividing the salary by the number of hours worked in the week. It

cannot, of course, be less than the applicable minimum wage in any week.

Since straight-time compensation has already been paid, the employee must

receive additional overtime pay for each overtime hour worked in the week

at not less than one-half this regular rate. Take the example of an

employee who works no more than 50 hours and is compensated on a fluctuating

workweek basis at a weekly salary of $200.00. If during the course of

four weeks the employee works 40, 44, 50, and 48 hours, the regular hourly

rate of pay in each of these weeks is $5.00, $4.55, $4.00 and $4.17.

Since straight-time pay for all hours worked has already been paid, only

additional half-time pay is due. For the first week the employee is due

$200.00; for the second week $209.10 ($200 plus 4 hours at $2.275); for

the third week $220.00 ($200 plus 10 hours at $2.00); for the fourth

week $216.68 ($200 plus 8 hours at $2.085).

Employees Working at Two or More Rates: Where an employee in a single

workweek works at two or more different types of work for which different

straight-time rates have been established, the regular rate for that

week is the weighted average of such rates. That is, the earnings from

all such rates are added together and this total is then divided by the

total number of hours worked at all jobs.

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the regular rate. This is so regardless of whether the commission is

the sole source of the employee's compensation or is paid in addition

to a salary or hourly rate. It does not matter whether the commission

earnings are computed daily, weekly, monthly or at some other interval.

Commission Paid on a Workweek Basis: When a commission is paid on a

workweek basis, it is added to the employee's other earnings for that

workweek, and the total is divided by the total number of hours worked

in the workweek to obtain the employee's regular rate for the particular

workweek. The employee must then be paid extra compensation at one-half

of that rate for each overtime hour worked.

Deferred Commission Payments: If the calculation and payment of the

commission cannot be completed until some time after the regular pay

day for the workweek, the employer may disregard it until the amount

of commission can be determined. When the commission can be computed

and paid, the additional overtime compensation must be paid.

To compute this additional overtime compensation, the commission is

apportioned back over the workweeks of the period during which it was

earned. The employee must then receive additional overtime pay for

each week during the period in which overtime was worked. If it is not

possible or practicable to allocate the commission on the basis of the

amount of commission actually earned each week, some other reasonable

and equitable method must be adopted. One such method is to allocate

an equal amount of commission earnings to each workweek in the period

in which the commission was earned; another, is to allocate equal

amounts to each hour worked in that period.

For the weekly basis:

(1) If the commission computation period is one month, multiply

the commission payment by 12 and divide by 52 to get the amount of

commission allocable to a single week.

(2) Divide the commission for each week by the total number of

hours worked in that week, to get the increase in the hourly rate.

Additional overtime due is computed by multiplying one-half of this

figure by the number of overtime hours worked in the week.

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Basic rates must be substantially equivalent to the average hourly

earnings paid and may be used only pursuant to an agreement or

understanding arrived at between the employer and the employees or as

a result of collective bargaining before performance of the work. As

an example, to simplify bookkeeping and computation of overtime, the

regulations authorize rates obtained by dividing an employee's piece

work earnings each day, and using that rate for computation of pay for

overtime worked that day.

PAYMENTS EXCLUDED FROM THE REGULAR RATE

Overtime Pay for Hours in Excess of a Daily or Weekly Standard: Many

employment contracts provide overtime pay for hours worked over 8 per

day or 40 per week. Such extra compensation paid for the excess hours

whether or not at time and one-half, is excludable from the regular

rate and may be credited toward statutory overtime payments.

Premium Pay for Work on Saturdays, Sundays, and Other Special Days:

Extra compensation provided by a premium rate of at least time and

one-half which is paid for work on Saturdays, Sundays, holidays, or

regular days of rest, or on the sixth or seventh day of the workweek

as such, may be treated as overtime pay. If the premium rate is less

than time and one-half, the extra compensation paid must be included

in determining the regular rate of pay and cannot be credited toward

statutory overtime due.

''Clock Pattern'' Premium Pay: A collective bargaining agreement or

other employment contract may in good faith establish certain hours

of the day as the basic, normal or regular workday (not exceeding 8

hours) or workweek (not exceeding 40 hours) and provide for the payment

of a premium for work outside such hours. The extra pay will be

treated as an overtime premium if the premium rate is not less than

one and one-half times the rate established in good faith by the

contract or agreement for like work performed during the basic, normal

or regular workday or workweek.

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Bonuses: All remuneration for employment except the payments specified

in the law are included in the regular rate. Among these excludable

payments are discretionary bonuses and gifts and payments in the nature

of gifts on special occasions. Nondiscretionary bonuses must be totaled

in with other earnings to determine the regular rate oh which overtime

must be paid. Where the bonus covers only one weekly pay period, the

amount is added to the employee's earnings and the total divided by

the total hours worked. Where the bonus covers a longer period of time,

the employer may temporarily disregard the bonus and pay for overtime

at time and one-half exclusive of the bonus. When the amount of the

bonus can be ascertained, it is apportioned back over the workweeks of

the period during which it may be said to have been earned. The employee

must then receive additional pay for each workweek that he or she worked

overtime during the period. The overtime pay will be one-half of the

hourly rate of pay allocable to the bonus for that week multiplied by the

number of overtime hours worked during the week.

Discretionary Bonuses: A bonus need not be included in the regular rate

if the employer retains discretion both (1) that a bonus will be paid

and (2) that the amount is not determined until the end, or near the

end, of the bonus period. Thus, for example, if an employer paid a

bonus without prior contract, promise, or announcement and the decision

as to the fact and amount of payment lay in the employer's sole

discretion, the bonus would be properly excluded from the regular rate.

On the other hand, if an employer announces in January that a bonus

will be paid in June, discretion regarding the fact of payment has

been abandoned. Such a bonus would not be excluded from the regular

rate under the Act.

Gifts, Christmas and Special Occasion Bonuses: If a bonus paid at

Christmas or on other special occasions is a gift, it may be excluded

from the regular rate even though it is paid with regularity so that

the employees are led to expect it. It may be excluded even though

the amounts paid to different employees or groups of employees vary

with the amount of the salary or regular hourly rate. For example,

a Christmas bonus of two weeks salary to all employees and an equal

additional amount for each 5 years of service with the firm would be

excluded from the regular rate of pay. However, if the bonus is geared

to hours worked or production, or is so substantial when compared with

regular wages that the employees consider it a part of wages, it is not

considered as a gift.

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illness, failure of the employer to provide sufficient work (for

example, because of machinery breakdown or materials shortage), or

other similar causes, where the payments are in amounts approximately

equivalent to the employee's normal earnings for a similar period of

time, are not made as compensation for the hours of employment and

may be excluded from the regular rate of pay. However, no part of

such payments may be credited toward overtime compensation due under

the Act.

Pay for Foregoing Holidays and Vacations: In some instances employees

are entitled to holiday or vacation pay but forego the holiday or

vacation and work on that day or period. If they receive their

customary rate (or higher) for their work on the holiday or vacation

day, the additional sum given as holiday or vacation pay is excluded

from the regular rates of pay.

''Show-up" and ''Call-Back'' Pay: Some employment agreements provide for

a stated number of hours pay if the employee is not provided with the

expected amount of work. For example, an employee might be guaranteed

all least 4 hours' pay for reporting for work, or if called back to work

after the scheduled hours have been ended. If the employee works

only 2 hours but is paid for 4 hours, the pay for the two hours not

worked is not regarded as compensation for working time and may be

excluded from the employee's regular rate of pay, but cannot be

credited toward statutory overtime pay due.

''On-Call'' Pay: If employees who are on-call are not confined to their

homes or any particular place, but are required only to leave word

where they may be reached, the hours spent on-call are not regarded as

working time. However, any payment for such on-call time, while not

attributable to any particular hours of work, is paid for performing

a duty connected with the job and must be included in the employee's

regular rate. If an on-call employee is called out for a job assignment,

the time spent on the assignment is hours worked and must be counted

and paid for. For example, an employee paid $4.00 an hour works 40

hours and is paid $22 for being on-call over the weekend. If called

back for 4 hours of work, the pay is $160.00 (40 hours x $4.00) plus

$22 on-call pay plus $16 straight-time pay for 4 overtime hours, or

$198.00. Dividing the total earnings of $198.00 by 44 hours worked

yields a regular rate of $4.50 an hour. One-half the regular rate

times 4 overtime hours equals $9.00 overtime pay, making the total

pay $207.00 for the week.

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Exclusion of Minor Additions to Pay in Cash or in Kind: Under

Regulations Part 548, minor additions to pay in the form of cash or

in kind, such as a single meal per day, may be excluded from the

regular rate in computing overtime pay due. The value of the

additional payment may not increase the total pay of the employee by

more than 50 cents a week on the average for all overtime weeks in the

period for which additional payments are made.

Profit-Sharing and Thrift or Saving Plans: Payments made by an

employer on behalf of an employee to a bona fide profit-sharing plan

or trust, or bona fide thrift or saving plan, which meet the

requirements of regulations issued by the Administrator (Parts 547

and 549) may be excluded from the regular rate of pay. If the

regulatory provisions are met, prior approval of the plan by the

Department of Labor is not required.

Benefit Plans: Contributions irrevocably made by an employer to a

trustee or third person pursuant to a bona fide plan for providing

old-age, retirement, life, accident, or health insurance or similar

benefits, such as Supplemental Unemployment Benefits, may be excluded

from the regular rate of pay for purposes of computing overtime pay.

Section 778.215 of Interpretative Bulletin, Part 778, sets forth the

conditions for exclusion. If the conditions are satisfied, prior

approval of the plan by the Department of Labor is not required.

OTHER MATTERS

How Deductions Affect the Regular Rate: Deductions made for such items

as ''board, lodging, or other facilities'' furnished employees, union

dues, savings bonds, and charitable contributions do not affect the

regular rate. The employee's regular rate is computed before the

deductions are made.

Fixed Sum for Varying Amounts of Overtime: A lump sum paid for work

performed during overtime hours without regard to the number of overtime hours worked does not qualify as an overtime premium even though

the amount of money paid is equal to or greater than the sum owed on

a per-hour basis. For example, no part of a flat sum of $60 to employees

who work overtime on Sunday will qualify as an overtime premium, even

though the employees' straight-time rate is $4.00 an hour and the employees

always work less than 10 hours on Sunday. Similarly, where an agreement

provides for 6 hours pay at $6.00 an hour regardless of the time

actually spent for work on a job performed during overtime hours, the

entire $36.00 must be included in the employees' regular rate. The

reason for this is clear. If the rule were otherwise, an employer

desiring to pay a fixed salary regardless of the number of overtime

hours worked could merely label as overtime pay a fixed portion of such

salary sufficient to take care of compensation for the maximum number

of hours that would be worked. The same reasoning applies to payment

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of a flat sum for a special job performed during overtime hours.

Extra compensation paid in the form of a lump sum for varying amounts

of overtime hours must be included in the regular rate and may not

be credited against statutory overtime compensation due.

Salary for Workweek Exceeding 40 Hours: A fixed salary for a regular

workweek longer than 40 hours does not discharge the statutory

obligation. For example, an employee may be hired to work a 44-hour

workweek for a weekly salary of $200.00. In this instance the regular

rate is obtained by dividing the $200.00 straight-time salary by 44

hours, which results in a regular rate of pay 94.55. The employee is

then due additional overtime computed by multiplying the 4 overtime

hours by one-half the regular rate of pay ($2.275) or $9.10.

Overtime Pay May Not Be Waived: The requirement that overtime must

be paid after 40 hours a week may not be waived by agreement between

the employer and employees. Similarly, an agreement that only 8

hours a day or only 40 hours a week will be counted as working time

will clearly fail. An announcement by the employer that no overtime

work will be permitted, or that overtime work will not be paid for

unless authorized in advance, also will not impair the employee's

right to compensation for the overtime work.

Computing Overtime Pay on the Rate Applicable to the Type of Work

Performed in Overtime Hours: A simpler method of computing overtime

pay for employees paid piece rates or at a variety of hourly rates is

provided in section 7(g)(1) and (2). The regular rate may be computed

at a piece rate not less than one and one-half times the bona fide

piece rate applicable to the same work when performed during non-overtime

hours. In the case of an employee performing two or more kinds of work

for which different hourly rates have been established, the regular

rate may be computed at rates not less than one and one-half times the

bona fide rate for the same work when performed during non-overtime

hours. Under these methods, there must be an agreement or understanding

with the employees before performance of the work. Also, extra

overtime compensation must be properly paid on other forms of

additional pay required to be included in computing the regular rate.

Special Overtime Provision for Hospital Employees: Under section 7(j)

hospitals and residential care establishments may, pursuant to a

prior agreement or understanding with its employees, utilize a fixed

work period of fourteen consecutive days in lieu of the workweek for

the purpose of computing overtime, if they pay time and one-half the

regular rate for hours worked over eight in any workday or eighty in

the fourteen-day period, whichever is the greater number of hours.

Special Overtime Provision for Fire Protection and Law Enforcement

Employees: Instead of the standard 7-day workweek, work periods of

7 to 28 days may be used in computing overtime pay for fire protection

and law enforcement employees employed by public agencies. This

exception from the standard 40-hour week is explained in Regulations,

Part 553.

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U.S. GOVERNMENT PRINTING OFFICE : 1994 0 - 155-649