How To Calculate An Employee's Regular Rate of Pay and Overtime Rate of Pay: Salaried Employees
Calculate The Weekly Rate of PayA non-exempt employee's salary only compensates the employee for the first 8 hours in a day or the first 40 hours in a week. Therefore, we start by determining the employee's regular weekly wage. If the employee is paid by the week, this is easy. If the employee is paid bi-weekly you simply divide in half. If, however, the employee is paid semi-monthly (ie., twice a month) then you have to multiply the semi-monthly salary by 24 (the number of pay periods in the year) then divide by 52 (the number of weeks in the year) to get the weekly rate of pay.
EXAMPLE: Employee is paid $1,500.00 twice per month. $1,500 x 24 = $36,000 per year.
$36,000.00 divided by 52 weeks = $692.31 per week (rounding up because you cannot pay a partial cent).
Divide the Weekly Rate of Pay by 40Since a non-exempt employee's salary only compensates the employee for the regular hours worked, the law (in California at least) presumes the employee was paid $0.00 for any hours in excess of 8 per day or 40 per week. If an employee works 50 hours per week, the last 10 hours each week is totally uncompensated. Therefore, to determine the employee's regular rate of pay you divide the employee's weekly salary by 40.
EXAMPLE: $692.31 per week divided by 40 = $17.31 per hour (again, rounding up).
Multiply the Regular Rate of Pay By 1.5To determine the employee's overtime rate, you multiply the regular rate of pay by 1.5. The employer must then pay the employee the overtime rate for any hours worked in excess of 8 hours per day or 40 hours per week.
EXAMPLE: $17.31 x 1.5 = $25.97 per hour overtime rate.
This Method Only Applies to Non-Exempt Salaried EmployeesIf the employee is truly exempt from the overtime laws then there is usually no need to calculate the employee's regular rate of pay (although it can be useful for vacation, sick leave or PTO payout). If the employee is compensated by some method other than a salary (i.e., commission, piece rate, etc.) then the calculations are a bit more complicated. If an employee receives a performance bonus then that bonus must also be included in calculating the regular rate of pay, and the method is again slightly different.
Employers and employees may need to know this information if they discover the employee was misclassified as an exempt employee or if the non-exempt employee works occasionally works some overtime.
NOTICE: Possible Exception to the RuleA California Appellate court recently approved an explicit mutual wage agreement as an exception to the general rule that a non-exempt employee's salary only covers the regular hours worked. In Arechiga v. Dolores Press, Inc. (11 C.D.O.S. 1733), the employer and employee agreed to pay the employee $11.14 per hour for the regular hours worked and $16.71 for the overtime hours, and that the employee would regularly work 66 hours per week for a weekly salary of $880.00. The employee brought suit claiming the $880.00 only compensated the employee for the first 8 hours in a day and the first 40 hours in a week. The Court of Appeal rejected the employee's argument and upheld the parties' right to negotiate a weekly salary based on a specified agreed hourly rate so long as the agreement is explicit, mutual and agreed to before the work is performed.