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The overtime premium is the extra half-time portion of overtime pay, the additional 0.5 times the regular rate owed on top of straight time for each hour a nonexempt employee works beyond 40 in a workweek under the FLSA. It is calculated on the regular rate, not on the base hourly wage.
Federal overtime is often described as time and a half, but it is more precisely straight time for all hours worked plus a premium of one half the regular rate for hours over 40. Framing it that way matters because the premium is calculated on the regular rate, a derived figure, not on the base hourly wage. The regular rate includes nondiscretionary bonuses, shift differentials, on-call stipends, commissions, and the value of certain prizes, divided by total hours worked in the week. It excludes discretionary bonuses, gifts, reimbursed expenses, and certain benefit plan contributions.
The half-time framing also explains how retroactive bonuses work. When a quarterly production bonus is paid, it must be allocated back over the weeks it covers, and an additional overtime premium is owed on those weeks. Similarly, an employee working two jobs at different rates within the same employer generally has a weighted average regular rate, and the premium is computed on that blend.
Premiums the employer already pays can sometimes offset the obligation. Extra compensation paid at a rate of at least time and a half for work beyond eight hours in a day or on weekends and holidays is excludable from the regular rate and creditable toward overtime owed, as the DOL fact sheet on the regular rate explains. Contractual premiums that do not meet that structure, such as a flat shift differential, are not creditable and instead increase the regular rate.
Because straight time for every hour worked is already owed. The obligation for hours past forty is the additional half of the regular rate on top of that straight time. Framing it this way makes clear that the premium is computed on the regular rate, not on the base hourly wage.
It has to be allocated back over the weeks it covers, and additional overtime premium is owed for any of those weeks with hours past forty. Employers that pay the bonus without recalculating create a small underpayment in every affected week, which multiplies across a workforce.
Some of them can. Extra compensation paid at a rate of at least time and a half for work beyond eight hours in a day or on weekends and holidays is excludable and creditable against overtime owed. A flat shift differential does not qualify and instead raises the regular rate.