A WHD Opinion Letter reminds employers that hazard pay is among the many forms of additional compensation that will increase overtime liability.
By: Joshua C. Hausman, Esq.
Nearly a year to the date since the U.S. Department of Labor, Wage and Hour Division (“WHD”) last addressed the subject, a new WHD Opinion Letter reminds employers that overtime is to be calculated from an employee’s “regular rate,” and not simply from an employee’s base rate of pay. Employers should review their practices to avoid an unwanted scare this Halloween season.
The Fair Labor Standards Act (“FLSA”) requires that non-exempt employees be paid “at a rate not less than one and one-half times the regular rate at which [the employee] is employed” for all hours worked over forty (40) in a workweek. Many employers conflate an employee’s “regular rate” with the employee’s “base rate of pay,” but these terms have different meanings. The “regular rate” is a mathematical calculation, derived by dividing the wages paid to an employee by the hours worked in that same workweek. “All remuneration” received by the employee is to be included in the calculation of the regular rate, subject to certain statutory exclusions. Two principles merit emphasis. The first is that an employee’s regular rate may vary from week to week, depending on the pay received by the employee and the hours worked in that workweek. The second is that compensation is presumed to be includable in the regular rate, unless it can be shown that a statutory exclusion applies.
Last fall’s WHD Opinion Letter on the subject, 2024-1, reminded employers that expense reimbursements must be included in the regular rate where the payments do not reasonably approximate expenses actually incurred by the employee on the employer’s behalf. This fall’s Opinion Letter, 2025-04, concerned “emergency pay”—often referred to as hazard pay—for municipal firefighters and paramedics who performed work during periods of disaster or emergency declarations. These employees received a premium payment of an additional one-half of their base hourly rate for every hour worked during a declared emergency. Among the statutory exclusions under the FLSA are exclusions for discretionary bonuses as well as certain designated premium payments. According to the Opinion Letter, the emergency pay did not qualify for the discretionary bonus exclusion because it was required to be paid (under policy) when emergency work was performed in a pre-determined amount, and not in an amount in the employer’s sole discretion at or near the end of the period in which the work was performed. The pay also failed to qualify for the FLSA’s several exclusions for premium payments because it was not contingent on work performed (1) in excess of any daily or weekly amount, or outside of a normal working period; or (2) on designated special days. The emergency pay was contingent only on an emergency declaration and, thus, was includable in the regular rate and overtime earnings.
The WHD took the additional step of demonstrating exactly how the emergency pay worked to increase the overtime owed to the firefighter, as well as the firefighter’s overall earnings. Based on an assumed base rate of $20.00 per hour and a total of 50 hours worked in a workweek—20 of which were earned during an emergency declaration—liability was calculated as follows:
- Total remuneration: ($20 x 50hrs) + ($20 x 20hrs x .5) = $1,200
- Regular rate: $1,200 / 50hrs = $24
- Overtime premium: $24 x 10hrs x .5 = $120
- Total weekly earnings: $1,200 + $120 = $1,320
While WHD this summer did announce a change to existing policy in that it would no longer seek liquidated damages in administrative enforcement actions, liquidated damages remain recoverable through litigation. In the event of a lawsuit, employers can be liable not only for unpaid minimum wage payments or overtime, but also for “an additional equal amount as liquidated damages.” The Opinion Letter serves as a reminder for employers to tread carefully when it comes to including hazard pay, premium pay, or other non-discretionary pay enhancements in a collective bargaining agreement. Unless one of the statutory exclusions applies, these payments must be included in an employee’s overtime rate. An employer who is not including all required forms of remuneration in the calculation of an employee’s overtime rate is not calculating overtime pay correctly under the FLSA.
Takeaways:
- In calculating an employee’s overtime rate, all forms of remuneration must be included unless a statutory exclusion applies. There is a presumption that all forms of compensation must be included.
- The regular rate cannot be changed or limited by agreement. It is a question of fact, determined by dividing total earnings (minus exclusions) by the working hours over the week in question. It is both individualized and variable.
- Hazard pay or emergency premiums which are defined and required by agreement or policy must be included in the regular rate.
- Premium pay must be based on work performed in excess of 8 hours a day or 40 hours a week, in excess of the employee’s regular working hours, or for work on designated special days, to be excluded from the regular rate.
Bottom Line:
Employers should ensure that they are calculating overtime correctly to avoid unwanted surprises. The attorneys at Campbell Durrant can help you avoid a scare by staying on the right side of the FLSA.
