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The Four Things You Might be Forgetting When Calculating the “Regular Rate” of Pay

By Emily Knoles

Employers with nonexempt employees are familiar with the concept of regular rate of pay when calculating overtime for these employees. The regular rate of pay is more than just an employee’s hourly rate. Rather, the regular rate of pay includes the employee’s total pay for the pay period plus any additional compensation the employee earned over the total number of hours the employee works. 

The pitfall when conducting this analysis often occurs in determining what counts as “additional compensation.” Even if the employer has a policy to pay overtime, issues still arise when determining how to properly calculate and pay overtime. Here are four types of compensation that should be included when calculating the regular rate of pay:

  1. Nondiscretionary Bonuses. Nondiscretionary bonuses include all bonuses other than those that are truly at the discretion of the employer. The nondiscretionary bonus must be included in the regular rate of pay calculation over the entire period for which it is earned, whether weekly, monthly, quarterly, or annually.  
  2. The “Gift Card” Bonus. Sometimes employers compensate employees with a gift card, or other goods, as a “good job” or “thank you.” However, if that gift card is provided based on the performance of the employee, it will be considered a bonus payment and must be included in the regular rate of pay calculation. 
  3. Goods or Facilities. When non-cash payments are made to employees in the form of goods or facilities, the reasonable cost to the employer or fair value of such goods or facilities must be included in the regular rate. For example, if the employee’s wages include lodging provided by the company, the reasonable cost or the fair value of that lodging over the time period during which the lodging is provided must be added to the employee’s earnings before determining his/her regular rate.
  4. Non-overtime Premium Payments. Specific additional compensation, including premium pay for duties required by the job, such as night shift pay differentials and premiums paid for hazardous or dirty work, must be included when determining the regular rate. 

If you have questions about regular rate of pay compensation, please contact your Polsinelli attorney.