Calculation of Overtime
Calculation of Overtime and Regular Rate Overtime Adjustment
If an employee is paid solely on the basis of a single hourly* rate and receives no other compensation, the hourly rate is the regular rate of pay. Therefore, overtime pay is calculated at one and one-half times the hourly rate for all hours worked over 40 in a workweek (or as required by state law).
When an employee works at two or more hourly rates in the same workweek and receives no other compensation or works an assignment with OT and receives a bonus payment during the same week, the regular rate for that workweek is generally the weighted average of the two or more hourly rates and/or any bonus payment. That is, the earnings for all such rates are added together and this total is then divided by the total number of hours worked at all jobs.
Note: *Employees that are paid other than hourly, call the Employee Service Center for more information.
Not all bonuses are included in the regular rate calculation. Bonuses are either discretionary or non-discretionary:
- Discretionary bonus is one in which both the fact that a bonus is to be paid and the amount of the bonus are determined at the sole discretion of the employer (Kelly Services) at the end, or near the end, of the period. In addition, discretionary bonus is one in which the bonus payment is not made according to any prior contract, agreement of promise causing the employee to expect such payments regularly and the employee has no contract right, express or implied, to a bonus of any amount. The amount of a discretionary bonus is not included in the regular rate calculation.
- Non-discretionary bonus is one in which the bonus payment is announced to the employee. They are awarded to encourage employee productivity, efficiency, attendance or retention. The bonus is expected by the employee and they have been given advance notice of the bonus program and the specific requirements needed in order to qualify for it. The amount of a non-discretionary bonus payment is included in the regular rate calculation.
When a non-discretionary bonus or commission payment covers a period of time longer than a workweek, it must be allocated back pro rata over the workweeks of the period during which it was earned. The employee must then receive additional overtime pay for each workweek in which overtime was worked during the period. This is done on a workweek basis by dividing the amount of the bonus allocated to a particular workweek by the number of hours worked in that workweek to get the increase in the employee’s regular rate. One-half of the increase in the regular rate is due to each overtime hour in that week. These overtime adjustments will be shown as “Reg. Rate OT Adj.” on your wage statement. If double time adjustments are made, they will be shown as “Reg. Rate DT Adj.” on your wage statement.
Bonuses that are earned over a period of time and require a regular rate adjustment as described above are considered non-standard at Kelly and are only infrequently approved by the Payroll Department. Alternative bonus structures described below are the preferred methods of paying bonuses.
Payments NOT included in the regular rate of pay calculation include Holiday pay, Service Bonus, any bonus calculated as a percentage of total earnings (including overtime earnings) and discretionary bonuses. Additionally, a bonus system that provides a set monetary amount for each regular (non-overtime) hour worked and one and one-half times this amount for all overtime hours worked during that period is not included in the regular rate of pay calculation.
Examples of Calculation of Overtime and Regular Rate Overtime Adjustments
Overtime Calculation Example: Employee works at two different rates during workweek
Overtime Calculation Example: Employees wages include overtime and a weekly bonus