differential pay & OT

Sue Heyen

Employees who work at several specific locations within the city are paid a differential pay of $1.25/hour due to the higher cost of living, transportation, parking expense, etc. When computing overtime for work over 40 hrs/week, is the differential pay considered part of the regular rate and subject to the overtime rate?

System

I checked with my favorite HR Executive Special Report, "Defusing the Overtime Bomb:How to Comply with the FLSA." It basically says the regular rate includes every type of compensation, like shift differential, holiday pay, chicken feed, peanuts....
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James Sokolowski
Senior Editor
M. Lee Smith Publishers

Petard

That's right. You're supposed to add up all of those forms of compensation paid during the week and then divide by the number of hours worked during the week. The result is the "regular rate" for the week, which is the basis for the overtime-pay calculation. Obviously, when you add in your pay differential or shift premiums, etc., the regular rate will be higher than the employee's stated base hourly rate. Moreover, if the various amounts of premium pay vary from week to week, then the regular rate can change from week to week.

Oh, and if you pay performance bonuses, safety bonuses, etc., to your employees, the bonuses can have the effect of changing the regular rate for the time period covered. You either should calculate the bonus to be "x-percent" of compensation (including OT) paid during the period, or else you should go back and recalculate each employee's regular rate (and then pay any additional overtime pay that may be due). These rules apply to non-discretionary bonuses, i.e., where the employee knows that if he/she performs in a certain way, he/she will be entitled to a payment. If the bonus is just a gift--out of the kindness of your company's heart--then the bonus can be excluded from the regular rate calculation.

Good luck!