The Fair Labor Standards Act generally requires overtime (hours worked over 40 in any workweek) must be paid at a rate not less than 1.5 times the employee’s regular rate. The overtime rate, therefore, depends on the employee’s “regular rate.”
Under the FLSA, for overtime calculation purposes, an employee’s regular rate must be an hourly rate. This is true regardless of whether your employer pays you hourly, or a salary, piece rate, day rate, commissions, bonuses, or some combination of different forms of compensation. In calculating your regular rate (and therefore, your overtime rate) all compensation should be considered.
Under the FLSA, your regular rate of pay is determined by dividing your total remuneration for employment (except for a few statutory exclusions) in any workweek by the total number of hours you actually worked in that workweek. The FLSA regulations provide examples of how this regular rate / overtime rate calculation works, for different types of compensation arrangements.
If you are paid only an hourly rate, your regular rate is your hourly rate. Your overtime rate is therefore 1.5 times your hourly rate. If you make $12 an hour, your overtime rate is $18.
If you are paid an hourly rate plus periodic non-discretionary bonuses, your regular rate for a given week is determined by adding your hourly pay plus bonuses earned that week, and dividing that amount by the total number of hours your worked that week. If you make $12 an hour, work 46 hours, and receive a $46 dollar bonus , your regular rate is therefore $13 (($12*46 hours )+ $46 bonus = $598; $598/46 hours = $13). Your overtime rate for that week is $19.5. This reflects an overtime premium of $6.50 for each hour over 40. Your weekly pay should be $637 (46 hours at $13 plus 6 hours at $6.50, or 40 hours at $13 plus 6 hours at $19.50).
If you are paid a piece-rate, your regular rate for a given week is computed by adding together your total earnings for the workweek from piece rates and all other sources (like bonuses, or payments for waiting time). This sum is then divided by your number of hours worked that week, yielding your regular rate for that week.
For example, if you work 50 hours and receive $491 in piece rates plus $32 for 4 hours of waiting time, resulting in total compensation of $523 for 50 hours of work, your regular rate is $10.46 ($523/50 = $10.46). Your overtime rate is $15.69. This reflects an overtime premium of $5.23. Your weekly pay should be $575.30 (50 hours at $10.46 plus 10 hours at $5.23, or 40 hours at $10.46 plus 10 hours at $15.69).
If you are paid a flat sum per day or per job, regardless of hours, and receive no other compensation, your regular rate is calculated by dividing your total compensation for the week by the total hours you actually worked. If you work 50 hours and receive $600 in day rates or job rates that week, your regular rate is $12 ($600/50). Your overtime rate is $18. This reflects an overtime premium of $6.
Commissions, regardless of the formula used to compute them, and regardless of the intervals in which they are paid, are payments for hours worked and must be included in the regular rate. The fact that your employer might pay commissions on a basis other than weekly, and that commission payments might be delayed for a time past your normal pay day or pay period, does not excuse your employer from including this payment in your regular rate and overtime rate.
If you receive commissions on a weekly basis, the commissions must be added to your other earnings for the week to determine your overtime rate. If you worked 50 hours and were paid $10 an hour plus $100 in commissions, your regular rate is $12 ($600/50 = $12). Your overtime rate is $18. This reflects an overtime premium of $6.
If your commissions for the week cannot be calculated and paid by your employer until sometime after the regular pay day for the week, your employer can disregard the commissions in computing your regular rate until the amount of the commissions is known. In the meantime, overtime can be paid on your base hourly rate.
When your commissions can be computed and paid, your employer must pay you additional overtime that results from including your commissions in calculating your regular rate of pay. To do this, as a general rule, your commissions should be apportioned back over the workweeks during which they were earned. In some cases, commissions may be apportioned by averaging them across weeks or hours. You should then receive additional overtime pay for each week you earned commissions and worked overtime (usually, more than 40 hours). The additional pay for each week must be no less than half the increase in your hourly rate of pay attributable to the commission, multiplied by the number of overtime hours you worked that week.
For example if you worked 50 hours in a week, receive overtime on your base hourly rate, and the following month are paid $500 in commissions earned that week, you should receive additional overtime pay for that week of at least $50 ($500/50 = $10 additionally hourly, resulting in $5 overtime premium; $5*10 = $50 additional overtime pay).
These are only a few of many scenarios where overtime calculations get tricky. Because your regular rate is a function of all compensation received, if you receive forms of compensation that vary (like bonuses, commissions, or piece rates) your overtime rate will change from week to week.