Most overtime underpayments are not the result of an employer refusing to pay overtime. They come from multiplying the wrong number. An employer pays time-and-a-half faithfully — on the base hourly rate — while the employee also earned a production bonus, a shift differential, and a commission that all legally belong in the calculation.
The Fair Labor Standards Act does not say "1.5 times the hourly wage." It says 1.5 times the regular rate, and the regular rate is a computed figure that changes week to week. That distinction is the whole subject.
Non-exempt employees must receive at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. A workweek is a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods. It can begin on any day and at any hour, but once established it must remain fixed. Overtime is computed per workweek; you may not average two weeks together to avoid it.
That last point catches employers with biweekly pay periods. An employee who works 50 hours one week and 30 the next has worked 80 hours in the pay period — and is owed 10 hours of overtime, not zero.
The regular rate is total remuneration for employment in the workweek, divided by total hours actually worked in that week.
Regular rate = Total includable compensation ÷ Total hours worked
What must be included
What may be excluded
The discretionary bonus trap. Employers routinely label bonuses "discretionary" that are not. If employees know the bonus exists, know roughly what triggers it, or expect it because it is paid every year, it is nondiscretionary — regardless of what the policy calls it, and regardless of whether the employer retains the right to cancel it. A true discretionary bonus is a genuine surprise.
Standard hourly employee
```
$20.00/hr × 45 hours worked = $900.00
Regular rate = $20.00
Overtime premium: 5 hrs × $20.00 × 0.5 = $50.00
Total due= $950.00
```
Because the straight-time for all 45 hours is already in the first line, the additional obligation is the half-time premium on the overtime hours. Paying 40 × $20 + 5 × $30 reaches the same $950.
With a nondiscretionary bonus
```
$20.00/hr × 45 hours = $900.00
Weekly production bonus= $100.00
Total includable compensation = $1,000.00
Regular rate = $1,000 ÷ 45 hours = $22.22
Overtime premium: 5 hrs × $22.22 × 0.5 = $55.56
Total due= $1,055.56
```
Paying $30/hour for the overtime hours here — the base-rate assumption — underpays by $5.56 that week. Multiply by a workforce and a few years and that is the shape of most wage-and-hour class actions.
A quarterly or annual nondiscretionary bonus must be allocated back across the workweeks it covers, and overtime recomputed for each week in which overtime was worked. If the bonus cannot be identified with particular weeks, allocating it equally across the weeks in the period is generally acceptable. A lump-sum bonus paid in December with no retroactive overtime adjustment is a violation, and it is a common audit finding because the bonus and the payroll register live in different systems.
Divide the salary by the number of hours it is intended to compensate.
```
$1,000/week salary intended to cover 40 hours
Regular rate = $1,000 ÷ 40 = $25.00
Employee works 46 hours
Overtime: 6 hrs × $25.00 × 1.5 = $225.00
Total due = $1,225.00
```
If the salary is intended to cover all hours worked, the regular rate falls as hours rise — but only under the fluctuating workweek method described below, and only if its conditions are met.
Two or more pay rates
Use the weighted average:
```
30 hrs at $18.00 = $540.00
15 hrs at $24.00 = $360.00
Total: 45 hours, $900.00
Regular rate = $900 ÷ 45= $20.00
Overtime premium: 5 × $20.00 × 0.5 = $50.00
Total due = $950.00
```
An alternative exists — paying overtime at the rate applicable to the work performed during the overtime hours — but it requires an agreement or understanding reached before the work is performed. Retroactive elections do not qualify.
Total weekly earnings from piece rates plus any other includable compensation, divided by total hours worked, produces the regular rate. Overtime hours then earn an additional half-time premium on top of the piece-rate earnings.
Overtime is calculated on the full applicable minimum wage (or the higher regular rate if the employee earns more), not on the reduced cash wage. Taking the tip credit against an overtime rate computed from the cash wage is a persistent and expensive error.
The Fluctuating Workweek Method
Under the fluctuating workweek method, an employee receives a fixed salary covering all hours worked in a week, however few or many, and overtime hours earn an additional 0.5 times the regular rate — because the straight time is already covered by the salary.
Four conditions must all be met:
Fixed salary $1,000/week; employee works 50 hours
Regular rate = $1,000 ÷ 50 = $20.00
Overtime premium: 10 hrs × $20.00 × 0.5 = $100.00
Total due = $1,100.00
Note the incentive structure: the more hours worked, the lower the regular rate. That is legal, but it draws scrutiny, and several states — California most prominently — do not permit the method at all. Deductions from the fixed salary for absences will generally destroy the arrangement, because the salary is no longer fixed.
The FLSA sets a floor. States may go further, and several do.
Where federal and state law differ, the employee gets the more favorable result — and the calculations are run separately, not blended. A California employee working 10 hours a day, four days a week, works no FLSA overtime (40 hours) but is owed 8 hours of daily overtime under state law.
Multi-state employers should confirm current rules through our HR Training by State resources rather than relying on a national policy.
Per workweek. Overtime is owed on hours over 40 in each fixed, regularly recurring workweek. You may not average hours across two weeks of a biweekly pay period.
Nondiscretionary bonuses must be included. Discretionary bonuses — where both the fact and the amount are at the employer's sole discretion and not announced in advance — may be excluded. Most bonuses employers call discretionary are not.
No. Overtime is based on hours actually worked. Vacation, holiday, and sick pay are neither hours worked nor includable in the regular rate. An employee who takes 8 hours of PTO and works 36 hours has worked 36 hours.
Allocate it back across the workweeks it covers and recompute overtime for each week in which overtime was worked. Where the bonus cannot be tied to specific weeks, equal allocation across the period is generally acceptable.
Yes. Salary is a method of payment, not a classification. You must still track hours and pay overtime, computing the regular rate from the salary and the hours it is intended to cover.
Yes, if you knew or should have known the work was performed. You may discipline for violating the approval policy, but you must pay for the time.
Build the regular rate from all includable compensation, compute it fresh each workweek, allocate multi-week bonuses back, and run federal and state calculations separately. Then audit: pull a quarter of payroll data, recompute the regular rate independently of your payroll system, and compare. The variance tells you whether your configuration is right.
For structured instruction, explore our FLSA Training Courses and Payroll Training Courses, work through the Payroll Compliance Checklist, or review the Glossary of Payroll Terms .
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