Calculating the Regular Rate of Pay
Dolley Law, LLC routinely handles claims and questions involving how to calculate the regular rate of pay for purposes of the Fair Labor Standards Act (“FLSA”). The “regular rate” of pay is a term of art under the FLSA that is critical to understand to ensure legal compliance and the payment of proper wages to employees. The attorneys with our Firm know the common issues and problems that arise in calculating the “regular rate” in a wide variety of workplaces and industries. Contact us today to learn more about what the “regular rate” means under the FLSA for you or your business.
What is the “regular rate” of pay?
The FLSA requires employers to compensate non-exempt employees at overtime rates for hours worked in excess of forty hours per workweek. 29 U.S.C. § 207. It also requires employers to compensate non-exempt employees at rates that do not fall below the federal minimum wage rate. 29 U.S.C. § 206; see also 29 C.F.R. §§ 778.107 – 778.108. To calculate overtime rates (and to ensure compliance with minimum wages), the employer must first calculate the employee’s regular rate for the workweek.
An employee’s “regular rate” is defined as including “all remuneration for employment paid to, or on behalf of, the employee.” 29 U.S.C. § 207(e). However, the FLSA specifies there are certain exclusions from the regular rate—that is, types of payments or amounts that can not be counted as part of the “remuneration for employment” for purposes of calculating the regular rate. Id. Such exclusions include, but are not limited to, gifts unrelated to hours worked, production or efficiency, reimbursable traveling or other expenses, discretionary payments, retirement contributions, certain extra premium payments, and certain stock option payments. See id.; see also 29 C.F.R. §§ 778.200 – 778.225.
Thus, to calculate the regular rate for an employee, the employer must divide all [non-excludable] pay to an employee by their total hours worked in the given workweek. This formula—pay divided by hours worked—results in an hourly pay rate. So, if the employee is employed solely on the basis of a single hourly rate, the hourly rate is the “regular rate.” 29 C.F.R. § 778.110. However, where an employee receives earnings in addition to an hourly rate, those earnings must be added to the hourly pay before dividing by all hours worked to properly determine the regular rate.
Several important principles govern determination of the regular rate. The regular rate cannot be “an arbitrary label chosen by the parties; it is an actual fact.” Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945). Accordingly, “[o]nce the parties have decided upon the amount of wages and the mode of payment[,] the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary ‘regular rate’ in the wage contracts.” Id. at 424-25.
The regular rate must be a rate per hour. 29 C.F.R. § 778.109. While the FLSA does not require employers to compensate employees on an hourly rate basis (and allows alternative payment structures, such as piece-rate pay), payment of overtime nonetheless still requires calculation of a regular rate. See id. Thus, even where an employer adopts an alternative pay scheme based on, for example, production or piece rates, the employer must still make and maintain accurate records of hours worked by the employees in order to be able to calculate the employee’s regular rate for purposes of any overtime payments owed and for purposes of ensuring that the pay rate in any given workweek does not fall below the federal minimum wage rate.
If you have further questions or concerns regarding the “regular rate” under the FLSA, contact the Dolley Law, LLC by phone at (314) 645-4100 or by email at firstname.lastname@example.org.