Why Overtime Isn't Just the Base Rate

Why overtime isn't just 1.5× the base rate

Federal law requires overtime pay at 1.5× the employee's "true hourly rate" for hours over 40 in a week. If your employees only earn straight wages, that's just 1.5× the base rate — done. But if you've paid a bonus, commission, or shift differential, the rate isn't the base hourly wage — it has to include those. A $20/hr worker who earned a $400 weekly bonus and worked 50 hours actually earned $28/hr, so overtime is $42/hr — not $30.

The trap is what counts as a "bonus" you can ignore. Almost no bonus is truly "discretionary" under federal law — once you've announced any bonus, it goes into the overtime rate. Production, attendance, signing, longevity, retention, holiday bonuses you've paid every year — all in. The "truly discretionary" carve-out almost never applies in practice.

How to calculate the right overtime rate

• List every non-base-rate payment your hourly employees get (bonuses, commissions, shift differentials).
• Add those payments to weekly earnings, then divide by total hours — that's the true rate.
• Use 1.5× that true rate for overtime — not 1.5× the base hourly wage.
• For multi-rate workers (warehouse + driving), use weighted average across all rates that week.
• If you backdate a raise, recompute past overtime at the new rate.

Where the math compounds into back-pay

• Calling a December holiday bonus "discretionary" when you've paid it every year — every overtime week with the bonus is miscalculated.
• An HVAC technician paid $30/hr for HVAC and $20/hr for janitorial — overtime needs the weighted average, not either rate.
• A $1,000 quarterly attendance bonus where you forget to recompute overtime across the 13 weeks.
• Backdating a raise without recomputing overtime in the past period — every OT hour is short by half the raise.

When in doubt, fold it into the overtime rate

The "truly discretionary" bonus exception is so narrow it almost never applies in practice. If you've announced a bonus, promised it at hire, or paid it every year — fold it into the overtime rate for that period. Overpaying overtime costs you a little; underpaying creates years of back-pay across every affected employee, plus automatic federal doubling.