Under the overtime provision of the Fair Labor Standards Act (FLSA), employers are generally required to pay non-exempt employees at least one-and-one-half their “regular rate of pay” for all hours worked in excess of 40 hours in a single workweek (or 48 hours in a single workweek if only Minnesota law applies).

The Department of Labor’s regulations for the FLSA provide that an employee’s regular rate of pay cannot “be left to a declaration by the parties,” but instead must be “drawn from what happens under the employment contract.”  29 C.F.R. § 778.108.  In most cases, an employer can calculate a non-exempt employee’s “regular rate of pay” by using the following formula:

  • First, determine the employee’s total remuneration for the workweek;
  • Second, subtract any payments that may be credited towards overtime under the FLSA’s statutory exclusions (e.g., overtime premiums, certain holiday and weekend premiums, etc…);
  • Third, divide the resulting total by the total number of hours actually worked by the employee during the workweek.

29 C.F.R. § 778.109.  The result of the above formula is the employee’s “regular rate of pay” for purposes of calculating overtime under the FLSA.

Takeaway:  Employers can mitigate the potential risk of liability under the FLSA by making sure to calculate an employee’s overtime rate using the correct method under the FLSA.