Introduction
The “regular rate” is one of the most misunderstood — and most frequently violated — parts of the Fair Labor Standards Act (FLSA). Employers often assume the regular rate is simply the hourly rate. In reality, it includes almost all compensation, and mistakes can lead to significant back wages during a DOL investigation.
As a former Wage & Hour Investigator, I’ve seen regular rate errors in nearly every industry. This guide explains what the regular rate is, what must be included, and how employers can avoid costly violations.
What Is the Regular Rate?
The regular rate is the basis for calculating overtime. It includes all compensation except for a few narrow exclusions.
The formula:
Total compensation ÷ total hours worked = regular rate
If the regular rate is wrong, overtime is wrong — and WHD will recalculate it during an investigation.
What Must Be Included in the Regular Rate
The regular rate must include:
- Nondiscretionary bonuses
- Incentive pay
- Commissions
- Shift differentials
- Piece‑rate earnings
- Day‑rate earnings
- Production bonuses
- Attendance bonuses
- Safety bonuses
If it increases an employee’s earnings, it likely belongs in the regular rate.
What Can Be Excluded
The FLSA allows only limited exclusions:
- Gifts (not tied to performance)
- Discretionary bonuses
- Reimbursements
- Vacation or holiday pay
- Sick pay
- Certain benefit plan contributions
Most bonuses employers call “discretionary” are not truly discretionary under the law.
Common Regular Rate Mistakes
1. Excluding Nondiscretionary Bonuses
If a bonus is tied to:
- Performance
- Attendance
- Productivity
- Safety
- Quality
…it must be included in the regular rate.
2. Incorrect Overtime for Piece‑Rate or Day‑Rate Workers
Employers often forget:
- Piece‑rate workers still get overtime
- Day‑rate workers still get overtime
- The regular rate must be recalculated each week
3. Not Recalculating When Bonuses Are Paid
If a bonus covers multiple weeks, employers must:
- Allocate the bonus across the weeks it covers
- Recalculate the regular rate
- Pay additional overtime
WHD routinely finds this violation.
4. Not Including Shift Differentials
Differentials must be included in the regular rate, even if:
- They vary by shift
- They are temporary
- They are paid inconsistently
How WHD Reviews the Regular Rate
During an investigation, WHD will:
- Review payroll and time records
- Identify all forms of compensation
- Recalculate the regular rate
- Recalculate overtime
- Determine back wages
If records are incomplete, WHD uses employee interviews and estimates.
How Employers Can Avoid Regular Rate Violations
- Review all bonus and incentive programs
- Identify nondiscretionary bonuses
- Train payroll staff on regular rate rules
- Conduct periodic payroll audits
- Correct errors proactively
Related Services
- FLSA Compliance Consulting
- H‑2A Compliance Consulting
- SCA Compliance Consulting
- DBA Compliance Consulting
- DOL Audit Defense
Conclusion
The regular rate is complex, but with the right understanding and processes, employers can avoid costly mistakes. If you want help reviewing your pay practices or preparing for a potential DOL investigation, I’m here to assist.
Contact me today to schedule a consultation.