Overtime, or OT, is typically calculated by multiplying an employee’s hourly rate by 1.5–pretty easy, right? It depends who checks your math.
The Department of Labor (DOL) recently published an opinion letter on pay rates, as they relate to calculating OT. According to the letter, you can vary employees’ average hourly rates from week to week–assuming the average hourly pay is always above the Fair Labor Standards Act’s minimum wage threshold. However, employers using this method should be cautious when determining OT pay. The DOL specified that a company may not “arbitrarily choose the regular rate of pay” on which to base OT–it must be based on fact and “mathematical computation.” In the simplest terms, this means: use an employee’s actual pay rate when calculating OT pay.
