How to Determine Your Employees Regular Rate of Pay

Employees Regular Rate of Pay

Both California Overtime Law and Federal Overtime Law require that non-exempt employees are paid overtime based on a "regular rate of pay." This regular rate or pay is not simply the given hourly rate of pay but is a computed rate based on all the compensation that is earned for the week. 

The regular rate of pay is calculated by dividing the total pay, except for flat sum bonus, for the by the total number of hours actually worked. The California Supreme Court recently decided, in Alvarado v. Dart Container Corporation of California, held that for purposes of calculating the regular rate, a flat sum bonus is to be allocated only to the non-overtime hours worked.

This means that the flat sum bonus should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period (rather than dividing all compensation received during the pay period by all hours worked), and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate. 

Below are examples of how to calculate the regular rate of pay.

1. An employee is paid exclusively on an hourly basis, that amount is the regular rate of pay.

• Employee earns $10.50 per hour, overtime pay would be $15.75 at time and one-half and $21 at double time.

2. An employee is paid two or more rates by the same employer during the workweek, the regular rate is the weighted average, which is determined by dividing the employee's total straight-time earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours.

• An employee works 32 hours at $12 per hour and 10 hours during the same workweek at $10.50 per hour, the weighted average (and thus the regular rate for that workweek) is $11.64. This amount is calculated by adding the employee's $489 straight-time pay for the workweek ((32 hours x $12/hour) + (10 hours x $10.50/hour) = $489) and dividing it by the 42 hours the employee worked ($489 / 42 hours = $11.64 per hour regular rate). The overtime premium of $5.82 (half the regular rate) is added to the employee's wages for each one and one-half overtime hour worked, and an additional overtime premium of $11.64 is added to hourly wages for each hour of double time earned.

3. An employee is paid an hourly rate plus a flat-sum bonus for the workweek, the flat-sum bonus is divided by only the non-overtime hours worked and added to the hourly rate of pay to determine the regular rate of pay to compute overtime. 

• An Employee works 32 hours at $14 per hour and earns a $50 attendance bonus, the regular rate is calculated by dividing the bonus by the number of non-overtime hours ($50 / 32 hours) for a rate of $1.56. This is added to the base hourly rate of $14 for a regular pay rate of $15.56 per hour at which overtime hours must be paid.

4. For employees paid by the piece or commission, one of the following methods may be used to determine the regular rate of pay for purposes of computing overtime:

•  The piece or commission rate is used as the regular rate, and the employee is paid one and one-half times this rate for production during the first 4 overtime hours in a workday and double time for all hours worked beyond 12 in a workday.
• Divide the employee's total earnings for the workweek by the total hours worked during the workweek. For each overtime hour worked, the employee is entitled to an additional one-half the regular rate for hours requiring time and one-half and an additional full rate for hours requiring double time.

5. To compute the overtime rate of pay for a full-time (40-hours per week) salaried, nonexempt employee, the employee's regular hourly rate equals 1/40th of the employee's regular weekly salary.

6. To compute the hourly rate for a nonexempt employee paid on a fixed weekly salary:

• Multiply the monthly remuneration by 12 (months) to obtain the annual salary.
• Divide the annual salary by 52 (weeks) to obtain the weekly salary.
• Divide the weekly salary by the number of regular work hours up to the legal maximum hours per week (40) to obtain the regular hourly rate.

Employers should remember that California law requires that overtime wages be paid no later than the regularly scheduled payday of the payroll period following that in which overtime was earned. While the law permits the delay of overtime pay by one payroll cycle, any straight time hours worked must be paid on the regular payday of the payroll period in which they were earned.

Lauren Sims is the article’s author and the Director of Human Resources.

Whenever you require professional Human Resources or Payroll guidance to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, contact us for a no-obligation consultation.

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