Wrong OT Rate & Pay Miscalculation

McGillivary Steele Elkin LLP has recovered millions of dollars for hard working employees whose employer improperly calculated their overtime rate by failing to include all of the different types of pay such as meal allowances, night shift pay or premium pays, or because they improperly use an all hours worked divisor instead of the 40 hour per week divisor the law requires. Our attorneys have written books and conducted conference panels on overtime pay rights and protections, we have handled numerous cases involving these issues and we are experts on spotting these violations where they occur.

Being Paid Less Than One and One-Half Times Your Regular Rate Of Pay

Miscalculating Regular Rate of Pay Leading To Incorrect Calculation Of Overtime Rate And Pay

In most circumstances, an employer must pay an hourly worker overtime at one- and one-half (1.5) times their regular rate of pay for all hours worked over 40 hours in a workweek. Where an employee is salaried, their overtime rate is based on how may hours their salary is intended to cover (though in some states such as California and Pennsylvania the salary is presumed to over 40 hours). If an employees’ salary covers their regularly scheduled 40-hour workweek, any unscheduled work performed over hours 40 in a workweek must be paid at one- and one-half (1.5) times their regular rate of pay. The  rules are the same public safety workers employed by government entities, although a work period instead of workweek may apply and the number of hours may be different..

Overtime rate or miscalculation violations occur when employers exclude non-discretionary bonuses, shift differentials, longevity pay, incentive pay, and certain cash benefits in lieu of insurance payments from the calculation of the regular rate.

If you think you have been paid overtime at the incorrect rate of pay, do not hesitate to contact us via email at info@mselaborlaw.com or by clicking the Contact Us button. 

Introduction to Overtime Pay

The Fair Labor Standards Act (FLSA) is a federal law that requires overtime pay to be paid to most employees at the rate of one and one-half times their “regular rate” of pay when employees work more than 40 hours in a week. As is explained below, the regular rate of pay is equal to an employee’s hourly rate of pay or higher. The majority of employees in the United States are covered by the FLSA. In addition, employees in the majority of states are covered by state overtime laws, many of which are more favorable to employees than the Fair Labor Standards Act.

Unfortunately, employers violate these overtime pay laws in many different and occasionally creative ways.

How is Overtime Pay Required to be Calculated and When Must Overtime Be Paid

The regular rate of pay is the rate at which overtime compensation must be calculated. For each hour of overtime a non-exempt employee works they must be paid one and one-half times the employee’s regular rate of pay. The regular rate of pay does not necessarily equal an employee’s hourly rate of pay; indeed, it is usually higher than the hourly rate rate. This is because included in the regular rate of pay are work-related payments that are not made for overtime work such as shift differentials, bonuses, longevity pay, and educational incentive pay. Thus, the regular rate always equals or exceeds an employee’s hourly rate of pay or, if the employee is salaried, the employee’s hourly equivalent.

Payments Included in the Regular Rate

Included in the regular rate of pay, regardless of whether or not an employee is salaried or hourly paid, are bonuses, shift differentials, educational incentive pay, longevity pay, and, with the exception of the items listed below, any other non-discretionary type of payment. Gifts, discretionary bonuses, pension benefit plans, profit sharing, and thrift saving plans may all properly be excluded from the calculation of the regular rate. In addition, if an employer pays an extra hourly premium that equals or exceeds the time and one-half rate for working on a particular holiday or day of the week, the employer may exclude that premium.

Some examples of types of payments included in the regular rate are explained below:

• Shift Differentials — Some employers pay a shift differential if an employee works at night, on Sundays, or on holidays. If the differential is less than 50% of the employee’s hourly rate of pay, it must be included in the calculation of the regular rate of pay used to compute the employee’s overtime rate.
• Non-discretionary bonuses — bonuses that are tied to working certain hours or achieving certain results — must be included in the overtime rate paid. Discretionary bonuses, which are in the nature of a gift, may be excluded but only if there is no express or implied promise of the bonus. In determining the overtime rate, a non-discretionary bonus may be prorated back over the time period for which it is being paid, within reason.
• Longevity pay — Some employees receive additional pay in recognition of their experience that are based on how long they have been employed. These types of payments must be included in the regular rate of pay.
• Payments for unused sick leave at the end of the year. The Trump DOL has tried to eliminate this through a so-called interpretative regulation, but it is unclear the courts will follow them on this sincUS Court of Appeals previously ruled that these payments must be included since they reflect an incentive to work.
• Incentive pay — Some employers provide an additional payment if an employee achieves an additional level of education or training. These payments must be included in the regular rate of pay.
• Cash In Lieu of Benefits – Where employers provide cash payments in lieu of providing certain health benefits, those cash payments must be included in the regular rate

Importantly, the label that an employer gives the payment does not determine if it should be included in the regular rate. For example, an employer labeled payments for working past 6 for office workers as “meal allowance” payments. However, since the payments were simply extra pay for working longer hours, the courts ruled that these payments must be included in the regular rate.

How to Compute the Regular Rate for Salaried Employees

As noted above, many salaried employees are entitled to receive time and one-half overtime compensation. Computation of the rate at which overtime must be paid for salaried employees is based on the number of hours for which the employee’s salary is intended to compensate him or her. As with hourly rate employees, included in the computation of the regular rate must be bonuses, shift differentials, educational incentive pay, longevity pay, and the like.

Salary for Fixed Number of Hours. Most salaries are intended to compensate an employee for his or her regularly scheduled hours during the workweek. To compute the regular rate of pay, the salary plus all other inclusions in the regular rate is divided by the number of hours that the salary is intended to compensate the employee. The employee is entitled to receive one and one-half times his or her regular rate of pay for each hour of overtime worked over 40 hours in a week.

For example, if an employee is paid $1000 a week as salary and works a work schedule of 40 hours a week, the employee’s overtime rate of pay is computed by dividing $1000 by 40. Thus, for each hour of overtime over 40 hours worked in a week, the employee is entitled to receive 1.5 times $25, which equals $37.50 an hour.

Fixed Salary for Varying Number of Hours. Some employers pay employees a fixed salary for whatever hours an employee is required to work in a workweek. This is permitted under the U.S. Department of Labor’s regulations only if the employee and employer have a clear mutual understanding that the salary is intended to compensate the employee for the straight time portion of his or her hours whatever the number of hours that the employee is required to work. If such an arrangement is properly established, according to the Department of Labor, an employer is obligated to pay only additional “half-time” pay for each hour in excess of 40 hours a week. Some courts and some state overtime laws, however, prohibit this type of calculation method and require that time and one-half overtime pay, rather than just “half-time” pay, be made in addition to employees’ salaries.

What Should be Calculated into your Regular Rate of Pay, and When

The FLSA requires that all non-discretionary pay be included in the rate at which overtime is paid unless there is a specific statutory exception for it. The most common types of pay that are wrongly excluded from the calculation of the regular rate of pay are longevity pay, shift differentials, hazardous duty pay, annual bonuses, and employee performance or contest awards. Pensions, holiday pay, paid leave, stock options and similar payments may be excluded from the regular rate.

Longevity or seniority pay that is paid once at the end of the year and then not included in the employees’ overtime pay is the most common type of violation, though shift differentials are often omitted as well. Merely because the payment is made only once a year is not a defense to failure to include it in the overtime rate. The employer must pro-rate the pay over the course of the year.