Employers have no doubt heard the phrase “regular rate of pay.” Indeed, this phrase often appears in employee handbooks. But, in our experience, employers do not fully understand what this (misleading) phrase means.
What is the Regular Rate of Pay?
Let’s first clarify what the “regular rate of pay” is not. Despite its name—and contrary to what many employers believe—the “regular rate of pay” is not necessarily an employee’s fixed hourly “base” pay rate. Indeed, employers run into legal problems because they assume otherwise.
To simplify, the regular rate of pay is an hourly rate that is determined on a workweek-to-workweek basis and is generally determined by adding together all the pay a non-exempt employee receives in that particular workweek by the total hours worked in that workweek. (There are some nuances and exceptions to this rule; however, for our purposes here we can skip those.)
An example will clarify this:
Suppose that in Week 1 a non-exempt employee earns a base hourly rate of $20.00 per hour, worked a total of 50 hours (i.e., 10 hours of overtime), and earned a productivity bonus of $100.00 that week.
The employee’s “regular rate of pay” in Week 1 would not simply be the employee’s base rate (again: this is a common mistake!), but would be $22.00—calculated as follows:
($20 x 50 total hours) + $100.00 bonus ------------------------------------------------------ 50 total hours
Now, if in Week 2 the same employee earns the same base rate (i.e., $20.00/hour) but worked a total of 42 hours and earned a productivity bonus of $120.00, the employee’s regular rate of pay in Week 2 would be $22.86/hour, calculated as follows:
($20 x 42 total hours) + $120.00 bonus ------------------------------------------------------ 42 total hours worked
An employer, in turn, would calculate the employee’s overtime rates in Week 1 and Week 2 based on the regular rate of pay for those weeks. (In another post, we can explain how this calculation is done.)
Does this Mean the Regular Rate of Pay Can Shift?
At this point, attentive readers may be wondering if an employee’s “regular rate of pay” can change each workweek. The short answer is: It can—and often does change.
Doesn’t the phrase “regular rate of pay” mislead you into thinking that the “regular rate of pay” is fixed, or the same, across time?
What’s the Big Deal?
While many of us may be allergic to mathematical calculations, correctly determining an employee’s “regular rate of pay” is absolutely critical. The regular rate of pay determines the rate that a non-exempt employee earns—and should be—paid overtime in any particular workweek (we can discuss how it does so in another post). And it also determines the rate at which any meal and rest premiums must be paid out (we can explain this in another post). In short, the “regular rate of pay” is not merely a pointless mathematical exercise but a critical component of legal compliance.
For more information on the regular rate of pay, please contact us at info@mnklawyers.com.
This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.
