Regular Rate of Pay

What Is the Regular Rate of Pay?

The regular rate of pay is the calculated hourly rate used to determine overtime compensation for non-exempt employees. While it may sound simple, the regular rate is more than just an employee's base hourly rate—it includes almost all forms of compensation the employee receives.

Under California law and the Fair Labor Standards Act (FLSA), employers must calculate overtime pay (time-and-a-half or double-time) based on the regular rate, not simply the base hourly wage. This ensures employees receive proper compensation when they work beyond standard hours.

How to Calculate the Regular Rate

The formula for calculating the regular rate of pay is:

Regular Rate = Total Compensation for the Week ÷ Total Hours Worked

What's Included in the Regular Rate

The following types of compensation must be included:

Compensation Type	Example
Base hourly wages	$20/hour base rate
Shift differentials	$2/hour extra for night shifts
Non-discretionary bonuses	Production bonuses, attendance bonuses
Piece-rate earnings	Pay per unit produced
Commissions	Sales commissions
On-call pay	Compensation for being on standby

What's Excluded from the Regular Rate

Certain payments are not included in the regular rate calculation:

• Discretionary bonuses (holiday gifts, spot bonuses at employer's sole discretion)
• Expense reimbursements
• Premium payments for overtime already paid
• Paid time off (vacation, sick leave, holidays)
• Employer contributions to retirement plans
• Employer-paid health insurance premiums

Regular Rate Calculation Examples

Example 1: Simple Hourly Employee

An employee earns $18/hour and works 48 hours in a week:

• Regular rate: $18/hour
• Regular pay: 40 hours × $18 = $720
• Overtime pay: 8 hours × $27 (1.5 × $18) = $216
• Total: $936

Example 2: Hourly + Shift Differential

An employee earns $20/hour base and worked 45 hours, including 20 hours at a $3/hour night shift differential:

1. Calculate total compensation:

   • Base pay: 45 hours × $20 = $900
   • Night differential: 20 hours × $3 = $60
   • Total: $960

2. Calculate regular rate:

   • $960 ÷ 45 hours = $21.33/hour

3. Calculate overtime:

   • 5 OT hours × $10.67 (half-time premium) = $53.35
   • Note: The $960 already includes straight-time pay for all 45 hours

4. Total: $1,013.35

Example 3: Non-Discretionary Bonus

An employee earns $16/hour, works 50 hours, and receives a $200 weekly production bonus:

1. Calculate total compensation:

   • Base pay: 50 hours × $16 = $800
   • Bonus: $200
   • Total: $1,000

2. Calculate regular rate:

   • $1,000 ÷ 50 hours = $20/hour

3. Calculate additional overtime premium:

   • 10 OT hours × $10 (half-time premium) = $100

4. Total: $1,100

California-Specific Considerations

California has stricter overtime rules than federal law, which affects regular rate calculations:

Daily Overtime

California requires overtime after 8 hours in a workday, not just 40 hours in a workweek. The regular rate calculation must account for:

• Time-and-a-half for hours 8-12 in a day
• Double-time for hours beyond 12 in a day
• Seventh consecutive day overtime rules

Piece-Rate Employees

For employees paid by the piece, California requires:

• Separate compensation for rest breaks at the average hourly rate
• Separate compensation for other nonproductive time
• Overtime calculated on the piece-rate earnings

Flat-Sum Bonuses

When a bonus is paid for work over multiple weeks, the bonus must be apportioned to each week and the regular rate recalculated accordingly.

Common Regular Rate Mistakes

Employers frequently make these errors when calculating the regular rate:

1. Using only base rate for overtime: Ignoring shift differentials and bonuses
2. Excluding non-discretionary bonuses: If a bonus is based on any criteria (attendance, production, etc.), it must be included
3. Improper bonus allocation: Not spreading flat-sum bonuses across applicable workweeks
4. Forgetting California daily overtime: Calculating overtime only on a weekly basis
5. Multiple rate errors: Not using the weighted average when employees work at different rates

Compliance Best Practices

To ensure proper regular rate calculations:

Track All Compensation

• Maintain records of all earnings, including shift premiums and bonuses
• Link bonus payments to the specific weeks they're earned
• Document which bonuses are truly discretionary (and why)

Use Automated Systems

Modern payroll and time-tracking systems can:

• Calculate regular rates automatically, including all compensation types
• Apply California's daily and weekly overtime rules correctly
• Generate compliant pay stubs showing all rate calculations
• Audit calculations for potential errors

Review Bonus Programs

• Analyze whether bonuses meet the legal definition of "discretionary"
• Structure bonus programs with overtime calculations in mind
• Communicate bonus calculations clearly on wage statements

Why Regular Rate Matters

Proper regular rate calculation is critical because:

• Legal compliance: Incorrect calculations violate wage and hour laws
• Financial exposure: Miscalculations can lead to class action lawsuits
• Employee trust: Transparent pay calculations build confidence
• Audit readiness: Accurate records demonstrate compliance to regulators

The Division of Labor Standards Enforcement (DLSE) actively investigates regular rate violations, and penalties can include back pay, liquidated damages, and civil fines.