Department of Labor Clarifies “Regular Rate”

Frank Kollman
Frank Kollman

Most employers are familiar with the terms “minimum wage” and “hourly rate,” but many are not familiar with the term “regular rate.”  Because overtime compensation must be paid at one and a half times an employee’s “regular rate,” not “hourly rate,” you should.  Let’s start with an example of the difference.

Assume an employee’s hourly rate is $20.00 an hour, but he receives bonuses and commissions based on productivity.  His “regular rate” is the hourly rate of $20.00, plus those bonuses and commissions reduced to an hourly rate based calculations of the hours worked in the workweek.  If those calculations amount to an additional $2.00 an hour, overtime is 1.5 times the regular rate of $22.00.  As you can imagine, the calculations can become quite complicated, especially when the employee’s hours vary from week to week, making it difficult to figure out how to allocate the bonuses or commissions to the hours worked.

The Department of Labor has historically taken the position that the value of certain employee benefits need to be taken into account in calculating the regular rate.  A new regulation would expand an employer’s ability to offer such benefits, like tuition reimbursement and health club discounts, to workers without having to consider the “regular rate” problem.  Some of the other perks that would not be subject to “regular rate” calculations under the new regulation would be employee discounts, leave buy backs, cell phone expense reimbursements, and coffee and snacks (yes, there is a question whether the peanut butter crackers and coffee in the break room must be factored into the regular rate).

This regulation will provide some clarity, but it is also a reminder that there is a difference between the hourly rate and regular rate.  If you pay employees for work beyond their hourly rate, make sure you are properly including or excluding that pay in calculating their regular rate for overtime compensation. For counseling or legal advice, please contact us by calling (410) 727-4300.

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