Introduction to the Fair Labor Standards Act (FLSA)

5. P AYMENT FOR A CCUMULATED FLSA CTO The Act requires employers to pay off all accumulated and unused FLSA CTO at termination at the higher of (1) the employee’s final regular rate or (2) the employee’s average regular rate of pay during the employee’s last three years of employment. 172 If an employee is paid for accumulated FLSA CTO prior to termination, the accumulated FLSA CTO must be paid out at the employee’s regular rate at the time of payment. 173

T HE R EGULAR R ATE OF P AY

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The FLSA requires that an employee who works over the maximum hours in his or her work week or work period must be compensated for those FLSA overtime hours at a rate of at least one and one-half times the employee’s “regular rate” of pay. The regular rate of pay is not necessarily the same and can be different from an employee’s hourly rate of pay or base rate of pay. Rather, the regular rate is a rate defined by the Act that takes into consideration all the various items of compensation provided to an employee for services to the employer in a workweek or work period, unless specifically excluded under the Act. 174 The Act specifies the types of compensation that may be excluded from the regular rate of pay and the regulations provide assistance in interpreting those exclusions. The regulations also explain a basic framework for actually calculating the regular rate of pay. A. O VERVIEW The regular rate for purposes of calculating FLSA overtime compensation will always be expressed as an hourly rate, and is the average hourly rate of all compensation an employee earns (unless excluded by the Act) in a workweek or work period less extra compensation paid for overtime hours. 175 While the Act does not require employers to pay their employees based on an hourly rate, an employee’s compensation must be converted into and expressed as an hourly rate in order to calculate the regular rate and pay overtime. 176 The regular rate includes “all remuneration for employment paid to, or on behalf of, the employee" except payments that are specifically excluded under the Act. 177 Employers and employees may not define an employee’s FLSA regular rate of pay via agreement or otherwise. 178 Rather, the regular rate of pay derives from a quotient based on all compensation paid to an employee in a workweek, divided by all hours actually worked in the workweek. A mere expression of a “base rate,” “hourly rate,” or “regular rate” in a labor agreement or other employment contract is not dispositive of the actual regular rate under the Act.

Introduction to the Fair Labor Standards Act (FLSA) ©2019 (s) Liebert Cassidy Whitmore 35