Posted on: July 15, 2026                                                                                                  

Federal law generally requires employers to pay non-exempt employees 1.5 times their regular rate of pay for hours worked over 40 in a workweek. Overtime mistakes often happen when employers focus only on an employee’s base hourly wage and overlook other compensation and compensable time that may need to be included in the calculation. Here are five areas where errors commonly occur.

1. Bonuses

A bonus increases overtime pay if it is nondiscretionary. Under federal law, most bonuses are considered nondiscretionary, must be included in the regular rate of pay calculation, and by extension increase the amount of overtime pay.

Nondiscretionary bonuses include:

• Bonuses based on a predetermined formula, such as individual or group production bonuses;
• Bonuses for quality and accuracy of work;
• Bonuses announced to employees to induce them to work more efficiently;
• Attendance bonuses; and
• Safety bonuses (i.e., number of days without safety incidents).

These bonuses are nondiscretionary because employees know about and expect the bonus. The fact that the employer has the option not to pay the bonus doesn't make the bonus discretionary.

If the nondiscretionary bonus is earned over a single workweek, the bonus is added to the employee's regular earnings for that workweek when determining the regular rate of pay.

If a nondiscretionary bonus covers more than one workweek and the amount cannot be determined until later, the employer may initially calculate overtime without the bonus. Once the bonus amount is known, the employer must:

• Allocate it back across the workweeks in the bonus period;
  

• Recalculate the regular rate for any overtime weeks; and
• Pay any additional overtime premium due.

2. Multiple rates of pay

Some employers pay employees different rates based on the job duties they perform. If a non-exempt employee works at two or more rates in an overtime workweek, the overtime calculation may change. Under federal law, the regular rate for such a workweek is generally the weighted average. For the purposes of determining the regular rate of pay, federal law also allows employers to use the hourly rate in effect when the overtime work is performed, as long as the employee agreed to this method in advance of performing the work and certain other conditions are met. These agreements should be in writing. Some states have different rules. Check your state law to ensure compliance.

3. Shift differentials

Many employers provide extra pay for work performed at times or conditions deemed undesirable by employees, such as nights or weekends, or for hazardous, arduous or dirty work. These shift differentials can increase the regular rate of pay and therefore overtime.

A shift differential is usually paid as an additional amount per hour. For example, an employee may receive an additional $1.00 per hour for each hour worked on the midnight shift.

Example:

An employee’s hourly wage is $16 per hour, and they receive a $3 shift differential for each hour worked on the evening shift. The employee works five 8-hour day shifts at $16 per hour and one 8-hour evening shift at $19 per hour. The employee’s regular rate of pay is calculated as follows:

Step 1: ($16 × 40) + ($19 × 8) = $792 total straight-time compensation

Step 2: $792 ÷ 48 = $16.50 regular rate of pay

This weighted-average approach is consistent with federal guidance for employees working at two or more rates in a workweek.

4. Travel, training, rest breaks and meal periods

As mentioned above, federal law requires employers to pay non-exempt employees 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. Federal law’s definition of hours worked includes not only time spent performing principal job duties, but also certain other compensable time, depending on the circumstances. For example, rest breaks of 20 minutes or less generally count as paid time, and some training time and work-related travel time, such as travel from site to site during the workday, must also be counted.

Missed or interrupted meal periods can also increase overtime pay because federal law has rules on pay when meal periods are provided (whether voluntarily or as a result of a state or local requirement). For a meal period to be treated as unpaid under federal law, both of the following generally must be true:

• The meal period must generally be at least 30 minutes without interruption; and
• The employee must be fully relieved of all duties for the purpose of eating a regular meal.

For example, if you require employees to do work, whether active or inactive, while they are eating their lunch, they aren't completely relieved of duty, and they must be paid for that entire time.

Check state law for additional guidance on meal period requirements. For example, depending on the state, you may be required to pay employees for meal periods if they must remain on your premises. Forcing employees to remain on the premises during rest breaks may also be considered a violation of state requirements.

5. Off-the-clock work

Employers can’t require or permit non-exempt employees to work off the clock. If the employer knows or has reason to believe the work is being performed, the time generally must be counted as hours worked and paid accordingly.

Make sure you have a policy that expressly prohibits off-the-clock work and that you put controls in place to prevent it.

Managers should also be trained on how to spot potential off-the-clock work and how to respond.

Conclusion

Develop policies and procedures to help ensure accurate time records are kept for all non-exempt employees, and ensure employees are paid for all time that must be compensated under applicable federal, state and local law.