Calculating Overtime FAQ
Below are some common questions about calculating overtime pay.
What is “Chinese Overtime”?
If an employee is paid a fixed salary each workweek for hours that vary up and down from week to week, the employer may use an overtime calculation method called “fixed salary for fluctuating workweeks”. This is the method that some companies in the past used to refer to informally as “Chinese overtime”.
It is easily the most favorable method for employers of computing overtime, but certain requirements have to be met. To use this method:
- the employee must have a work schedule with fluctuating hours, i.e., not be on a fixed schedule,
- and must be paid a fixed salary that is meant to be straight-time compensation for all hours worked in a workweek, whether the employee works less than or more than 40 hours per week.
- With almost no exceptions, no reduction in the salary may be made for short workweeks.
- In addition, the salary must be large enough to ensure that the regular rate will never drop below minimum wage.
In such a situation, the regular rate is determined by dividing the fixed salary by the number of hours worked that week. Since the fixed salary is already deemed to compensate the employee at straight time for all hours worked, any overtime hours only need to be paid at “half-time”, instead of time and a half. The employee has already been paid straight time by virtue of the salary, and the straight time is only paid once, so the overtime hours will be paid at half the regular rate, thus bringing the employee up to time and a half. In workweeks in which the overtime is high, the regular rate will be low, and the employer will enjoy a lower per-hour overtime cost.
The drawback for the employer is that if work is slow, and the employee is only working 25 or 30 hours per week, the fixed salary must still be paid.
As of May 2020, the Department of Labor has issued a new rule loosening the restrictions on employers’ use of the fluctuating workweek method to calculate overtime pay for non-exempt salaried employees. Because this method results in employees getting less overtime pay than under any other overtime calculation, workers’ rights advocates did not want to encourage more employers to use the fluctuating workweek method. The new rule allows employers to pay additional compensation based on the number of hours worked, such as bonuses, premium pay, or differential pay, in addition to paying a fixed salary and still take advantage of the fluctuating workweek method. The Obama DOL did not allow the use of these payments if the employer wanted to use the fluctuating workweek method because it felt it would encourage employers to shift a large portion of employee compensation to bonus and premium payments which are usually only offered for less desirable shifts or working longer hours. This new rule will likely go into effect around July 2021.
I am only paid 1/2 of my regular rate for overtime and sometimes even less. Is this right?
You may be a non-exempt salaried employee. See above.
I am always only paid 1/2 of my regular rate for overtime. Is this right?
It may be that your employer is paying time and a half for overtime hours but breaking down the payment in a different way. In some payroll systems, all hours, including overtime hours, will be paid at the regular rate in the one calculation. Then in a second calculation, the additional 1/2 time that is due on the overtime hours (the straight time pay for the overtime hours was included in the first calculation), will be shown separately. This results in the overtime hours being paid at time and a half – just broken down as 2 calculations, regular time and 1/2 time.
Hourly wage = $9.00. Total weekly hours: 50.
Paystub may show the following:
Regular Pay = 50 hours x $9.00 = $450.00
Overtime Pay = 10 hours x $4.50 ($9 x 1/2) = $45.00
Total Pay = $495.00
Since the 10 hours of overtime was included in the first calculation at $9.00/hour (straight time), the remaining overtime pay due is 1/2 time pay.
Alternatively, pay could have been calculated as:
Regular Pay = 40 hours x $9.00 = $360.00
Overtime Pay = 10 hours x $13.50 ($9 x 1.5) = $135
Total Pay = $495.00
I am paid a day rate. How should my overtime be calculated?
Learn about day rate here.
What if I am a salaried non-exempt employee? How is overtime calculated?
Learn about salaried non-exempt employees here.
What if I work 2 different jobs at different pay rates?
According to the U.S. Department of Labor, when an employee (in a single workweek) performs 2 or more different types of work with different straight-time rates, the regular rate for that week is the weighted average of the pay rates. That is, the earnings from all hourly rates are added together and the total is then divided by the total number of hours worked at all jobs. In addition, the FLSA allows, under certain conditions, the computation of overtime pay based on one and one-half times the hourly rate in effect when the overtime work is performed.
What this means is that employers must pay overtime to nonexempt employees for all hours worked over 40 in a single workweek, even if the employee is working two separate jobs at the same company.
Examples of how overtime may be calculated:
Weighted average of the different rates. The regular rate of an employee who works 35 hours per week at $15 per hour as a machine operator ($525), and works 10 hours that same week at $7 per hour cutting the grass outside the plant ($70), is $595 divided by 45 hours, or $13.22 per hour. Thus, the overtime rate for this employee is one and one-half times $13.22, or $19.83 per hour, regardless of which job the employee performs during the extra hours.
Alternatively, if employer and employee agree, before the work is performed, that the overtime rate will be based on the regular rate that applies to the type of work performed during the hours in excess of forty. Therefore, if an employee spends 35 hours in a week working as a machine operator at $15 per hour, and five hours a week cutting the grass at $7 per hour, the overtime rate for any additional hours spent cutting the grass is $10.50 per hour. Conversely, the overtime rate for any additional hours spent working as a machine operator is $22.50.
Should bonuses be included when calculating my overtime?
In most cases – Yes. Unless your bonus is completely discretionary on the part of your employer, it must be included in determining your “regular rate” of pay. If your bonus is tied to achieving certain preset goals, quotas or other requirements, it is not considered to be discretionary.
Can my employer only pay me overtime after 80 hours in a 2-week period?
Generally, no. Many employers will total an employee’s hours for a 2-week pay period and only pay overtime after 80 hours in the pay period. This is referred to averaging. However, overtime is based on a 7-day workweek and employers should look at each workweek individually and pay overtime after 40 hours in any one workweek.
For example, if an employee works 35 hours in one week and 45 hours in the next week, they are entitled to 5 hours of overtime pay even though the 2-week total is only 80 hours.
Note, hospitals and healthcare facilities are allowed to adopt an 8 & 80 system allowing them to pay overtime after 8 hours per day or 80 hours per 2-week pay period.
Can my employer round down my work hours?
The federal Fair Labor Standards Act does allow “rounding” of an employee’s starting and stopping times, and the Department of Labor has approved the practice of recording employee starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth (6 minutes) or quarter of an hour (15 minutes). However, the rounding must not always benefit the employer. The idea/justification is that this arrangement, over time, should average out so that the employees are fully compensated for all the time they actually work. See this link for further information.