Episode 11: Regular Rate

Hear how a decades-old landmark law guides today’s employers on some of the most pressing issues facing companies. Bill Martucci, who leads Shook, Hardy & Bacon’s national Employment Litigation and Policy Practice, shares insight in these bite-sized podcasts focusing on the Fair Labor Standards Act. Whether you’re a seasoned general counsel or just finding your way through the myriad of state and federal wage and hour laws, listening to Bill’s soothing discourse is time well spent.

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TRANSCRIPT

You’re listening to “A Window into Wage and Hour,” a podcast series that shines the light on time and money laws impacting your business today.

For our clients and friends, we continue with our wage and hour podcast. This is Bill Martucci, the practice leader for Shook Hardy in the national employment litigation and policy practice. As we think about our next topic, we’re going to focus on the regular rate. Yes, you have heard it correctly: our focus is the regular rate. What is the regular rate? Why does it matter under the Fair Labor Standards Act?

As we think back to earlier discussions, if one is an hourly employee—an hourly associate—overtime is based on one and one-half times the hourly rate. So, if your hourly rate is, for example, $20 an hour, then your overtime rate would be $30 an hour, which, of course, is one and one-half times the $20 an hour rate. But what is that overtime calculation? What is that regular rate as such in this context?

Well, the Fair Labor Standards Act, as we just noted, requires that overtime compensation be paid at the rate of one and one-half times the regular rate for hours in excess of 40 hours in a given workweek. As a result, to compute overtime compensation, the term regular rate must be defined.

Under Section 7e of the Fair Labor Standards Act, regular rate is defined as “all remuneration for employment paid to or on behalf of the employee.” The great challenge here is this definition, as provided in the Fair Labor Standards Act, fails to detail the means of computing such remuneration, and, although there are categories that are expressly excluded from the regular rate, there often is a great deal of uncertainty about whether a given item of remuneration fits within the regular rate or not. The importance of it, as we noted, is it determines how the calculation of overtime is to take place.

The Fair Labor Standards Act requires the earnings be converted to an hourly rate to determine the overtime pay. Generally speaking, the pay is determined by that hourly rate of pay divided by the employee’s total workweek remuneration. That’s done by essentially taking the total remuneration, dividing it by the number of hours worked during that given workweek.

What do you include within the “regular rate of pay”? Certain items are essential in terms of their inclusion. Other items are expressly excluded. Consider it to be included unless there is an express exemption. The Fair Labor Standards Act, for example, permits payments to be excluded from the regular-rate computations for certain times not worked. Such times include those when the employee is not at work due to vacation, holiday, illness, failure of an employer to provide sufficient work, or other similar causes. In addition, expense reimbursements are excluded from the regular rate of pay; employee benefits are excluded from the regular rate of pay; production bonuses that would be more formulaic in nature are excluded from the regular rate of pay. The essential aspects here are to consider very carefully, what is part of that regular rate and what isn’t part of the regular rate and how do you best determine what that regular rate is.

If, in fact, you are in a relatively straightforward setting and you have a set regular rate and there aren’t other aspects of remuneration that are to be put into the regular rate, then you are in a situation that does not present special challenges. For example, that idea that you have $20 an hour and then it is times and a half that to get to your overtime rate of $30, then all is good. But the great challenge is in many areas where it comes up, for example, with bonuses, if it’s a discretionary bonus, it may be excluded from the regular rate. But if it is a bonus that is more formulaic in nature, then in fact it will be included in the regular rate.

These dynamics we will discuss in greater detail on another occasion. But for now, the regular rate is defined as including all remuneration for employment unless otherwise excluded from the remuneration formula.

Thanks so much. Just to get us thinking about the regular rate is helpful because it is so critical to the overtime calculation. That concludes our discussion, our introduction to the concept of the regular rate.