Regular Rate of Pay

The regular rate of pay is the average hourly rate an employee actually earned in a workweek, and it is the number overtime is calculated from. It starts with the hourly wage but also takes in most other pay for working, such as bonuses and shift premiums.

Many payroll mistakes begin with treating the regular rate and the posted hourly wage as the same thing. They match only when an employee earns nothing beyond base pay.

What goes into the regular rate?

The Department of Labor's Fact Sheet #56A says the regular rate includes all remuneration for employment. Earnings may be set by the hour, by salary, by commission or by piece rate, and all of them feed the calculation.

In practice, add these items to base pay.

• Nondiscretionary bonuses, such as production, quality, attendance or safety bonuses, which Fact Sheet #56C says are included
• Shift differentials, such as an evening or night premium per hour
• Commissions and piece-rate earnings for the week

DOL's Fact Sheet #54 for healthcare gives nurse examples showing that shift differential pay raises the regular rate.

What can you leave out?

Fact Sheet #56A lists payments an employer may exclude. These include pay for time not worked, such as vacation, holiday and sick pay, and reimbursements of actual business expenses. Gifts qualify too, if they do not depend on hours, production or efficiency.

Bonuses can be excluded only when they are truly discretionary. The employer must decide both whether to pay and how much at or near the end of the period, with no prior promise. The label on the bonus does not decide it, and an agreement cannot waive the regular rate.

How do you calculate the regular rate?

Fact Sheet #56A gives the formula. Divide total compensation for the workweek, minus statutory exclusions, by total hours worked that week. Then pay an extra half of that rate for each hour over 40, since straight time for those hours is already in the total.

Say an employee earns $20 an hour, works 45 hours and receives a $90 attendance bonus promised in advance. The steps run as follows.

• Straight-time pay: 45 x $20 = $900
• Add the bonus: $900 + $90 = $990
• Regular rate: $990 divided by 45 hours = $22.00
• Half-time premium: $22.00 x 0.5 = $11.00 per overtime hour
• Overtime premium due: 5 hours x $11.00 = $55
• Total pay for the week: $990 + $55 = $1,045

Paying 40 hours at $20 and 5 hours at $30, then adding the bonus, gives $1,040. That is $5 short for one worker in one week.

Why does it differ from the base rate?

The base rate is the posted wage. The regular rate is a weekly average that reflects everything the employee earned for the hours worked. A week with a bonus or a night shift has a higher regular rate, so each overtime hour costs more.

Shift-heavy employers feel this most. HR Cloud's article on multi-shift time tracking in manufacturing notes that differentials, premiums and union terms all interact with how overtime gets calculated. Our overview of FLSA overtime rules covers who is owed overtime in the first place.

When a bonus covers a month or quarter, spread it back over the weeks it was earned and recalculate those weeks. Check DOL guidance on timing.

What mistakes do employers make?

The classic error is leaving bonuses out of the calculation because they are paid on a different schedule. Others include applying time and a half to the base wage only and excluding a bonus because it was called a gift or discretionary.

The opposite slip also happens. Some payroll teams add items that DOL allows them to exclude, such as expense reimbursements, which pushes the rate up and overpays. Review each earning code and mark whether it belongs in the regular rate.

Discover how our HR solutions streamline onboarding, boost employee engagement, and simplify HR management

Book a Demo

Frequently Asked Questions

Q: Does a salaried nonexempt employee have a regular rate?

A: Yes. Fact Sheet #56A says overtime is computed from an average hourly rate even when pay is set by salary, commission or piece rate. Divide the week's pay by the hours actually worked.

Q: Does paid time off count toward the regular rate?

A: Pay for vacation, holiday and sick leave is among the payments Fact Sheet #56A says may be excluded. Those hours are not hours worked for overtime purposes.

Q: How are commissions paid monthly handled?

A: Commission is part of the regular rate. When it is paid on a longer cycle, allocate it to the workweeks in which it was earned and divide by the hours worked in each of those weeks.

Q: Are perks like parking or a gym membership included?

A: Fact Sheet #56A lets employers exclude perks that are unconnected to hours worked, services rendered or performance. Perks tied to output or attendance are different, so review how each is awarded.

Q: Can an employee agree to a lower regular rate?

A: No. Fact Sheet #56A says the regular rate cannot be circumvented by an agreement. It also cannot fall below the applicable minimum wage.

Q: Does the regular rate matter for double time?

A: Yes. California's overtime FAQ calls for double the employee's regular rate for hours past 12 in a workday, so bonuses and differentials raise the double-time figure too.