Last week we talked about the workweek as the basis for computing overtime. Over 40 in a workweek, you pay overtime at a rate of time and one-half. Time and one-half of what, you ask? Well, that is simple enough, right? It’s time and one-half of whatever the employee’s hourly rate is, right? WRONG, my friend.
Well, not really wrong, but not really right either. In fact, what you are supposed to pay overtime based on is the “regular rate.” Today we are going to start talking about what the regular rate is.
So here is how the Regulations start this concept off:
The general overtime pay standard in section 7(a) requires that overtime must be compensated at a rate not less than one and one-half times the regular rate at which the employee is actually employed. The regular rate of pay at which the employee is employed may in no event be less than the statutory minimum. . . . If the employee’s regular rate of pay is higher than the statutory minimum, his overtime compensation must be computed at a rate not less than one and one-half times such higher rate. . . .
29 CFR § 778.107. The ellipses you see in the quote are just some exceptions that we are not going to talk about today. If you want to know what those exceptions are, go look at the Regulations.
So what is the regular rate? Well, first of all, the Regulations make it clear that it is not up to the employer and the employee to decide what the regular rate is.
The Regs say:
The ‘regular rate’ of pay under the Act cannot be left to a declaration by the parties as to what is to be treated as the regular rate for an employee; it must be drawn from what happens under the employment contract (Bay Ridge Operating Co. v. Aaron, 334 U.S. 446). The Supreme Court has described it as the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed—an ‘actual fact’ (Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419). Section 7(e) of the Act requires inclusion in the ‘regular rate’ of ‘all remuneration for employment paid to, or on behalf of, the employee’ except payments specifically excluded by paragraphs (1) through (7) of that subsection. (These seven types of payments, which are set forth in §778.200 and discussed in §§778.201 through 778.224, are hereafter referred to as ‘statutory exclusions.’) As stated by the Supreme Court in the Youngerman-Reynolds case cited above: ‘Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary ‘regular rate’ in the wage contracts.’
29 CFR § 778.108.
OK, so it’s about math. What else is it? Well, it’s an hourly rate. No matter how you pay a non-exempt employee, in order to pay overtime properly you have to break the pay down to an hourly rate to figure the correct amount of overtime. More math, man!
The ‘regular rate’ under the Act is a rate per hour. The Act does not require employers to compensate employees on an hourly rate basis; their earnings may be determined on a piece-rate, salary, commission, or other basis, but in such case the overtime compensation due to employees must be computed on the basis of the hourly rate derived therefrom and, therefore, it is necessary to compute the regular hourly rate of such employees during each workweek, with certain statutory exceptions discussed in §§778.400 through 778.421. The regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid. The following sections give some examples of the proper method of determining the regular rate of pay in particular instances: (The maximum hours standard used in these examples is 40 hours in a workweek).
29 CFR § 778.109.
I think that is enough for now. Next week we will talk about how you compute some of this.