This ESS trainer is the first in a 2-part series on correctly calculating overtime, especially when bonuses or commissions are involved.
Most employers want to pay their employees properly. But we find that many employers still do not understand the rules on hourly pay and overtime. Worse, they rely heavily on payroll companies and bookkeepers…who are not getting it right, either.
Hint: It’s Not Always Time and a Half.
So with that in mind, did you know…?
If you pay an outcome-based bonus to an employee, and that employee works overtime during the bonus period, the bonus increases the overtime rate of pay (wage) you owe the employee.
My guess is that at least a few of you are now running off to check the legitimacy of that information. But trust me, it’s true.
Which of course leads to this next question: “You mean I have to go back and pay more money to that employee who worked 4 hours of overtime in week 2 of last month?”
The answer, according the government, is a resounding yes!
But…isn’t ‘overtime’ just time and a half?
Now, riddle me this: Overtime means “1.5 x the hourly rate,” right?
If you answered yes, then no HR cookie for you!
Overtime is actually 1.5 times an employee’s regular rate of pay, for hours worked in excess of 40 hours in a workweek.
Ok, so what’s the ‘regular rate of pay’? And how does it differ from hourly?
Short answer: Hourly means just that. But the regular rate includes the hourly rate PLUS all other forms of compensation added up, then divided by the number of hours actually worked.
I’ve included the equation below to determine an employee’s regular rate of pay:
Step 1: Total weekly pay = Base hourly wages + additional compensation
Step 2: Regular rate of pay = Total weekly pay ÷ hours worked
Never heard that the regular rate of pay may not be the same as hourly rate? Don’t feel bad. Nine out of 10 business owners and managers are also not aware of the difference.
When regular and hourly rates of pay are the same:
Let’s look at an example. Say an employee works for McDonald’s and is paid $9/hour. There are no bonuses or commissions paid to this employee. Therefore, his regular and hourly rates of pay are always the same. There is no extra math. All time worked that exceeds 40 hours in a week is 1.5 x $9/hour.
Now here’s a typical misunderstanding:
“I pay my hygienist a commission on what she produces, and therefore I don’t have to worry about overtime or tracking hours.”
If this employee works overtime, this presents two wage violations you may be falling victim to: failure to track the hours of an hourly employee, and failure to accurately calculate and pay the overtime due to a commissioned employee. Both are big no-no’s!
So are you calculating overtime correctly, and in compliance with state and federal laws?
Have you been calculating overtime based on the regular rate of pay for all employees – with all applicable bonuses or commissions factored in? In our next Employer’s Solution Series trainer, we’ll provide more examples and guidance to help you ensure your overtime calculations are correct, especially for those employees who are paid commission or who earn production-based bonuses.
Meanwhile, are your overtime-related policies and your employee handbook helping protect your practice from wage and hour lawsuits and penalties in every way possible? CEDR can help. As an ESS member, you are eligible for special savings on our individually customized, HR-compliant employee handbooks and HR Solution Center membership. Call us at 866-414-6056, or shoot us an email at email@example.com for a quick, FREE quote.
Friendly Disclaimer: This article is general education and guidance and is not a substitution for legal advice. Employment issues are complicated and often require specific expert or legal guidance based on the circumstances.