How to Calculate the Regular Rate of Pay and Overtime: Step-by-Step Examples

The regular rate of pay is the total pay for the workweek, excluding a few items the law lets you leave out, divided by the hours actually worked. Overtime is then half of that rate for each overtime hour, on top of straight-time pay for all hours. When there are no bonuses or differentials, the regular rate equals the hourly wage. When there are, it is higher, and so is the overtime.

This guide gives you the formula, a full example with $20.00 per hour, 46 hours and a $60 nondiscretionary bonus, and the rules for items you can exclude. State rules may add requirements, so confirm details with counsel or your state labor department.

The formula

The regular rate is not simply the base hourly wage. Under 29 CFR Part 778, it is total remuneration for the workweek divided by total hours worked. Remuneration includes hourly pay, piece rates, commissions, shift differentials and nondiscretionary bonuses.

The calculation has four steps:

1. Add all straight-time pay and all includable extras for the week.

2. Divide by the total hours worked to get the regular rate.

3. Multiply half the regular rate by the hours over 40 to get the overtime premium.

4. Add the premium to the straight-time total to get gross pay for the week.

Example: $20.00 per hour, 46 hours and a $60 bonus

An employee earns $20.00 per hour, works 46 hours in the workweek and earns a $60 nondiscretionary bonus for meeting an attendance target announced in advance.

Step 1, straight-time pay: 46 x $20.00 = $920.00. Add the bonus: $920.00 + $60.00 = $980.00.

Step 2, regular rate: $980.00 / 46 = $21.3043 per hour.

Step 3, overtime premium: 6 overtime hours x 0.5 x $21.3043 = $63.91.

Step 4, total pay: $980.00 + $63.91 = $1,043.91.

The mistake that underpays by a few dollars

Many payrolls compute overtime from the base rate only. For the same employee, that gives 40 x $20.00 = $800.00, plus 6 x $30.00 = $180.00, plus the bonus of $60.00, for a total of $1,040.00. The correct total is $1,043.91, so the shortfall is $3.91.

That is a small amount, but it repeats. A team of 20 people with the same bonus pattern and the same underpayment loses 20 x $3.91 = $78.20 each week, or about $4,066 over 52 weeks. With liquidated damages and fees, the exposure grows quickly. See wage and hour lawsuits and back pay.

Which payments are included

The default rule is that everything an employee earns for work goes into the regular rate. Common includable items are:

- Nondiscretionary bonuses, such as production, attendance, safety and retention bonuses promised in advance.

- Shift differentials, which are explained in shift differentials and night shifts.

- Commissions and piece rates, which are paid for work performed.

- On-call and hazard pay that is tied to the work.

A bonus is nondiscretionary if the employee is told about it or expects it. A bonus is discretionary only if both the fact and the amount are decided by the employer at or near the end of the period, and not promised in advance.

Which payments can be excluded

The statute allows exclusions for items that are not payment for hours of work. The most common are truly discretionary bonuses, gifts, reimbursed business expenses, and pay for time not worked, such as vacation, sick leave and holidays. Overtime premiums themselves are excluded from the regular rate to avoid pyramiding.

The exclusions are narrow. A payment called a "gift" that employees expect every month is likely a bonus. Labels do not control, so look at how the payment actually works.

Bonuses covering more than one week

A quarterly or annual bonus must be allocated back to the workweeks in which it was earned. Suppose the same employee earns $20.00 per hour and a $650 productivity bonus for a 13-week quarter. Divided evenly, that is $650 / 13 = $50.00 per week.

In a week with 46 hours, the extra overtime owed on the allocated bonus is 0.5 x ($50.00 / 46) x 6. The rate on the bonus is $1.0870 per hour, so 0.5 x $1.0870 x 6 = $3.26. The employer owes that amount in addition to the bonus for each overtime week. If hours vary by week and the bonus is tied to hours, allocate in proportion to the hours.

Salaries, piece rates and clean inputs

For employees paid a weekly salary meant to cover a fixed number of hours, divide the salary by those hours to find the regular rate. A $1,000 salary for 40 hours is $25.00 per hour, and overtime hours are paid at 1.5 x $25.00 = $37.50. A different method applies if the salary covers all hours worked, as explained in salaried nonexempt employees and the fluctuating workweek method.

For piece-rate workers, divide total piece earnings by total hours worked to get the regular rate, and then pay an additional half of that rate for each overtime hour. If the pay includes both an hourly rate and a piece rate, add them together before dividing.

A regular rate calculation is only as reliable as the data behind it. You need the exact hours for each workweek, the rate for each block of hours, and a list of all extra payments by week. Records of this kind are among the items you must keep for nonexempt employees, and they are the first thing an investigator asks for.

Run a quick sanity check on every result: the regular rate should never be lower than the lowest hourly rate paid that week, and the overtime premium should be positive only when hours exceed 40. If either test fails, look for a missing payment or a wrong hour total.

The most common source of errors is a bonus entered in payroll without a link to the week it belongs to. Keep a short note for every extra payment: what it is for, which weeks it covers, and whether it was promised in advance.

How SimpleWorkshift Helps With Overtime Math

SimpleWorkshift records the hours behind every calculation. Employees clock in and out from the iOS or Android app or the web, and the system applies automatic overtime calculations, including night shift differentials. Managers see time entries and exceptions in real time.

Custom reports and dashboards give you the weekly hours by employee so your payroll team can add bonuses and premiums with confidence, and payroll closing locks the approved hours. Start a 30-day free trial, with no contracts and cancel anytime, at simpleworkshift.com.