I read an interesting post by Frank Shuster of Constangy, Brooks, Smith on the thorny and often misunderstood issue of the “regular rate” and what that concept entails for compliance with the FLSA.  Many employers, well-intentioned and seeking to comply with the law, often think that overtime is (simply) based upon the employee’s assigned rate (e.g., $20 per hour) and if they pay that amount (i.e., $30 per hour), they are complying with the FLSA (and State law).  That assumption, however, is incorrect.

For example, a class action has recently been filed against Anheuser-Busch, alleging various violations of wage-hour law.  The plaintiffs charge that the Company did not properly calculate the regular rate, meaning that it did not include various supplements and emoluments.  The case is in a very early stage, but the allegations highlight this troublesome issue.  It is a problem that extends to all employers, big and small.

As the post points out, it is not always just that straight hourly rate that forms the basis for overtime computations.  Employers offer all manner of supplements and incentives, from production and attendance bonuses, to shift differentials, and other promised bits and pieces of compensation.  These extra monies (often small amounts) if they are promised (e.g., in a policy or Handbook) to employees and the employees earn the extra money, those amounts must be added into the ordinary regular rate and a new, higher regular rate is established on which overtime must then be computed.  Thus, the regular rate can fluctuate from week to week, depending on what extra monies are earned (or not).      

The proper way to calculate overtime for employees receiving supplements is to aggregate all compensation for that week, then divide that sum by total hours worked and arrive at a specific regular rate for that particular week.  Then, based on a formula, a half-time element is computed, multiplied by the number of overtime hours, and that is the extra amount owed that worker for that single week.  On a weekly basis, the extra amounts will (usually) be small.  It is when that computation is not done and the small extra money is not paid that the liability starts to mount up, week by week, for each affected employee.  In other words, there might be an entire “class” of people who are affected by this error.    

The Takeaway

These are the types of cases, types of threats, that keep me up at night.  This is because if an overall policy of not including certain emoluments in the regular rate exists, it likely applies to an entire class of employees.  This means that securing conditional (and final) certification will not be that hard as there are no factual disputes as to the viability of the class.  If there are many workers involved and they often work overtime, the liability can be titanic.  Employers must review all extra monies given hourly employees to determine if they need be included in the regular rate.

Or like the Titanic, go down with the ship…