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To calculate overtime, first identify the hours that you must pay on an overtime basis. Second, decide what overtime rate must be applied. Third, determine the regular rate to which overtime must be applied.
For examples of some of the more common situations you may face, see Overtime Examples. The Overtime Calculation Worksheet can also be used to assist you in calculating overtime for your nonexempt employees.
The basis for calculating overtime is the employee’s regular rate of pay. The “regular rate” is not always an employee’s normal hourly amount. The regular rate must include almost all forms of pay that the employee receives. For example, the following payments are included in the regular rate of pay:
If you provide cash payments to employees in lieu of health benefits, you must include those cash payments in your calculation of the regular rate of pay.2
The Ninth Circuit ruled that paying employees cash in lieu of benefits was similar to bonuses and room and board. Thus, these payments were compensation and must be included in the regular rate of pay for determining overtime, even though the payments didn’t fluctuate with the number of hours an employee worked. Employers who offer flexible benefit plans that allow employees to receive cash in lieu of benefits should consult legal counsel regarding the effect on overtime pay.
The following payments are not included in the regular rate of pay:
The names or labels assigned to payments do not determine whether the payment is properly included or excluded from the regular rate of pay. In other words, calling a payment a gift, discretionary bonus or reimbursement doesn’t necessarily make it so. In overtime cases where employees allege certain payments were unlawfully excluded from the regular rate, courts look at the circumstances surrounding the payments to determine whether it should have been included or excluded.
For example, in one case, an employer paid employees an hourly rate plus a per diem reimbursement for mileage, food and other expenses when they worked more than 50 miles from their homes. The employees were not required to submit receipts or documentation. Since they considered the per diem payments reimbursements, the employer did not include those amounts in the regular rate of pay. The Ninth Circuit ruled that the per diem payments functioned as compensation, not reimbursements, because the amounts were tied to hours worked and not to actual expenses incurred by the employees. As such, the payments should have been included in the regular rate of pay.4
While employers are permitted to compensate employees on an hourly, salaried, commission, piecework or other basis, an employee’s regular rate for overtime is calculated as an hourly rate.
Generally, an employee’s regular rate for a work week may be calculated by adding all payments the employee received over the course of the week (except certain excluded payments such as those listed above) and dividing the total compensation by the total number of hours worked.5
If an employee’s only compensation is from hourly wages, then the regular rate is the same as the hourly rate. However, if the hourly employee receives additional compensation such as production bonuses or commissions, then the regular rate of pay may be different from the hourly rate. Employers who compensate employees with a combination of hourly wages and other additional compensation should consult with counsel to determine the appropriate regular rate of pay for overtime purposes.
To calculate a full-time salaried nonexempt employee’s regular rate, divide the total weekly salary by 40.7 For example, if the weekly salary is $800, the regular rate for overtime purposes would be $20 ($800 divided by 20 = $40).
If you pay employees by a piece rate or commission:
For more information on the overtime calculation for piece rate employees, see Piece Rate Pay.
You can pay different rates for different jobs, if the work involved is objectively different. In addition, you can pay for nonproductive time, such as time spent traveling, at a different rate. For more information, see Travel Time. You must give employees advance notice of the lower rate.8
When an employee with more than one rate of pay works overtime, you must calculate the employee’s regular rate of pay to determine the overtime rate.9 The method used to determine the regular rate of pay is called the weighted average method.
The regular rate will be established by adding all hours worked in the week and dividing that number into the total compensation for the week. For more information, see “Calculating Overtime for Hourly Employees” in on this page.
In a recent court case, a company used the “rate-in-effect” method to determining regular rate of pay for dual-rate employees.10 Under this calculation, the employee with two rates of pay receives overtime at the rate of one-and-a-half times the rate in effect at the time the overtime hours were worked. The court determined the rate-in-effect policy was lawful because it actually resulted in a higher net payment to employees than the weighted average method would have. In order to be lawful, employee compensation policies must be neutral. The DLSE has endorsed the weighted average method of calculating overtime; if you choose to use any other method, consult with legal counsel prior to implementation.
In the situation where an employee is paid two rates during the course of the day and one of those rates is a statutorily-mandated rate (i.e., prevailing wage), the regular rate for calculating the overtime rate for work performed on the public works project must be based on the higher of either the weighted average or the prevailing wage rate in effect at the time that the work is performed. It would be very unusual for the weighted average to be higher than the prevailing wage rate, but it is possible.11
Example: If an employee is employed in a workweek for some hours on a private construction job at $14 per hour and then employed other hours on a public work project at $28 per hour, any overtime performed on the public work site must be compensated at the overtime rate required by the prevailing wage determination in effect on that project for the craft.
If the overtime is performed on the non-public work project, the weighted average of the public works rate of pay and the non-public works rate of pay is the regular rate to be used in the calculation of the overtime.12
For a discussion on paying nonexempt employees for California’s mandatory paid sick leave at the regular rate of pay, see Calculating Leave - Employer Options.
When an employee works overtime and earns time and one-half, they receive the hourly rate plus one-half of the regular rate of pay. When the employee earns double-time, they receive the hourly rate plus the full regular rate of pay.
An employee can earn more than one hourly rate. For example, an employee normally earns $20 per hour working at trade shows and $18 per hour for travel time (minimum wage). In one week, the employee works 40 hours at a trade show and spends 10 hours traveling.
Based on the calculations above, you would pay the employee as follows:
The payment of a non-discretionary bonus to nonexempt employees is included in the regular rate of pay. A “non-discretionary bonus” is extra wages provided to the employee based on predetermined factors that cannot be withheld unless the employee does not meet the stated goal. For more information, see Bonus.
The exact method for calculating overtime on a non-discretionary bonus depends on whether it is a production bonus or a flat-sum bonus.
A production bonus is “based on a percentage of production or some formula other than a flat amount [which] can be computed and paid with the wages for the pay period to which the bonus is applicable.”14
The regular rate for such a bonus is found by dividing the bonus by the total hours worked (including overtime) during the period to which the bonus applies. The overtime pay on the bonus is then calculated by multiplying one-half of this regular bonus rate by the number of overtime hours worked during the period in which the bonus was earned (or multiply by one for double time hours).
The employer first finds the overtime due on the regular hourly rate and then separately computes the overtime due on the bonus.
Example:
Total earnings due for the workweek:
A court ruling found that employers can calculate non-discretionary percentage bonuses using the federal Fair Labor Standards Act (FLSA) calculation method rather than the method described in the DLSE Manual. Relying on federal regulation CFR 778.210, which states that a percentage bonus based on straight time and overtime earnings satisfies federal overtime requirements, any bonus calculated as a percentage of both straight time and overtime that used the DLSE’s formula would result in the double counting of overtime—“overtime on overtime.”15
If the bonus is a flat sum, such as $300 for continuing work through the end of the season, a specific formula is required. This flat-sum bonus is not designed as an incentive for increased production but, instead, so the employee remains with the employer.
The California Supreme Court issued a decision approving the Division of Labor Standards Enforcement’s method for calculating overtime on nondiscretionary flat-sum bonuses: Divide the employee’s bonus by the number of nonovertime hours an employee worked (not the total number of hours worked, including overtime). This method provides you with the per-hour value of the flat-sum bonus to use in calculating the regular rate of pay.16
The case involved Dart Container Corporation, which manufactures food service products. Dart allegedly maintained a policy of paying an “attendance bonus” to employees who worked Saturday and Sunday shifts. The bonus was $15 per day, regardless of the number of hours in the weekend shift.
An employee sued for unpaid wages, alleging that Dart did not properly pay him overtime during the weeks that he earned the weekend attendance bonuses.
The employee argued that overtime pay on any flat-sum bonus should be divided only by the “regular” hours he worked that week (the method in the DLSE Enforcement Manual), not by the “total” hours worked during the week (regular hours plus overtime hours worked, the federal formula). For example, you would divide the flat-sum bonus by only 40 regular hours instead of 48 total hours (regular hours plus overtime hours). This would result in a higher regular rate of pay and, thus, a higher overtime rate.
The California Supreme Court approved the DLSE method of calculating the regular rate of pay when a flat-sum bonus is involved.
Example: An employee earning $20 per hour worked 50 hours in a workweek (40 hours of straight time and 10 hours of overtime). The employee also received a $20 flat-sum bonus for working a weekend shift. Using the Supreme Court’s method, the employee’s wages for the week would be calculated as follows:
Total wages: $1187.50 ($800 + $360 + $20 + $7.50)
The Supreme Court reasoned that a flat-sum bonus is not tied to the number of hours worked — the $15 will be paid when an employee picks up a weekend shift, regardless of how many hours the employee worked that week. Because the flat-sum bonus was payable even if the employee didn’t work overtime, only the nonovertime hours should be considered to calculate the regular rate of pay, held the Court.
This decision is limited to non-discretionary flat-sum bonuses; however, employees may try to argue it should apply to other types of extra compensation.
Nonexempt employees can be paid a salary, rather than an hourly or piece rate wage. However, placing a nonexempt employee on salary does not make that worker an exempt employee. In California, nonexempt employees are still protected by all of the wage and hour laws, and must be paid overtime, keep time records and receive the proper meal and rest periods. In addition, nonexempt employees’ pay stubs must show all hours worked and applicable pay rates.
To calculate overtime for salaried nonexempt employees, determine the regular rate as described above. Then determine the overtime hours and correct overtime rates for those hours (either time and a half or double time). For each hour of overtime worked, the salaried nonexempt employee earns either 1.5 or 2 times the regular rate.
For example, if a full-time salaried nonexempt employee earned a weekly salary of $800, the regular rate of pay would be $20 (800 divided by 40). If that employee worked for 45 hours during the week (9 hours per day M-F) then the employee would be entitled to 5 hours of overtime at 1.5 times the regular rate of pay. 1.5 times the regular rate of $20 equals $30, multiplied by 5 overtime hours equals $150. Thus, the total compensation owed to the employee would be $950 ($800 salary + $150 overtime).
For information on overtime for fixed salary employees, see Minimum Wage.
Hours paid to the employee for time that is not actually worked do not count for purposes of overtime.17 Examples include vacations, holiday pay, sick pay, reporting time pay, split shift premiums and floating holidays. For example, an employee is paid eight hours for the Thanksgiving holiday (Thursday). They work eight-hour days on Monday, Tuesday, Wednesday, Friday and Saturday that same week. The employee is paid for 48 straight-time hours for the week. Base overtime strictly on hours worked, not hours paid. For more information, see“Straight-Time Hours Defined” in Defining Workday and Workweek.
1. DLSE Enforcement Policies and Interpretations Manual sec. 49.1.2.1 - 49.1.2.3
2. Flores vs. City of San Gabriel, 824 F.3d 890 (9th Cir. 2016), rev. denied
3. DLSE Enforcement Policies and Interpretations Manual sec. 49.1.2.4
4. Clarke v. AMN Services, LLC, No. 19-55784 (9th Cir. 2021)
5. DLSE Enforcement Policies and Interpretations Manual sec. 49.2.1.2
6. DLSE Enforcement Policies and Interpretations Manual sec. 49.2.2
7. Lab. Code sec. 515(d)
8. DLSE Opinion Letter 1994.02.03-3
9. DLSE Opinion Letter 1994.02.03-3
10. Levanoff, et al. vs. Dragas, et al., 65 Cal.App.5th 1079 (2021)
11. DLSE Enforcement Policies and Interpretations Manual sec. 49.2.6
12. DLSE Enforcement Policies and Interpretations Manual sec. 49.2.6.1
13. DLSE Opinion Letter 1992.05.14
14. DLSE Enforcement Policies and Interpretations Manual sec. 49.2.4
15. Lemm v. Ecolab Inc., 87 Cal. App. 5th 159 (2023)
16. Alvarado v. Dart Container Corporation of California, 4 Cal.5th 542 (2018)
17. DLSE Enforcement Policies and Interpretations Manual sec. 49.1.2.4