Last Update: October 1, 2025

Under the Fair Labor Standards Act (FLSA), the wage rate used to calculate overtime pay is called the Regular Rate of Pay (RROP). Understanding RROP correctly and calculating it properly is extremely important for employers to maintain compliance.

In this article, we will explain the basic concept of RROP using several practical examples.

Basic Concept of RROP

RROP is calculated by dividing the regular compensation paid in a given workweek by the total number of hours actually worked during that workweek.

This calculation is not limited to hourly wages. It is based on the employee’s total compensation, including certain types of allowances, bonuses, and other payments.

RROP applies only to non-exempt employees. Because exempt employees are not entitled to overtime pay under the FLSA, they are not subject to RROP calculations.

Payments That Must Be Included in RROP

Under the FLSA, most forms of compensation must be included in RROP unless they fall under a specific exclusion.

Shift Differential

A shift differential is additional compensation paid for working certain shifts, such as night shifts or early morning shifts. The FLSA does not require employers to pay a shift differential. However, if an employer chooses to pay one, the amount must be included in the employee’s RROP.

Example:
An employee earns $15.00 per hour and receives an additional $0.50 per hour for night shifts. The employee works 20 daytime hours and 25 night-shift hours in one workweek.

Daytime work: $15.00/hour × 20 hours = $300.00

Night-shift work: $15.50/hour × 25 hours = $387.50

Total compensation: $687.50

Total hours worked: 45 hours

RROP: $15.28/hour = $687.50 / 45 hours

Nondiscretionary Bonus

A nondiscretionary bonus is a bonus paid based on clearly defined criteria, such as productivity, efficiency, attendance, or quality. These bonuses must be included in RROP.

Example:

An employee earns a $2,250 bonus for meeting a production target over a three-month period, or 13 weeks. The employee works 44 hours each week.

• Weekly bonus allocation: $2,250 / 13 weeks ≈ $173.08 per week
• Bonus amount per hour: $173.08 / 44 hours ≈ $3.93
• Additional overtime premium: $3.93 × 0.5 ≈ $1.97
• Additional overtime owed per week: $1.97 × 4 overtime hours = $7.88
• Total additional overtime owed for 13 weeks: $7.88 × 13 weeks = $102.44

Payments Excluded from RROP

The following are common examples of payments that generally do not need to be included in RROP:

• Gifts: Payments for anniversaries or special occasions that are not tied to hours worked, production, or performance
• Expense reimbursements: Travel expenses and other business-related reimbursements
• Payments for time not worked: Vacation, sick leave, holidays, family and medical leave, military leave, and similar payments
• Payments for holiday work or unused vacation: However, compensation for actual hours worked must still be included
• Equity-related compensation: Stock options, employee stock purchase plans, and similar arrangements
• Discretionary bonuses: Fully discretionary bonuses that were not promised in advance, such as certain year-end holiday bonuses
• Certain attendance bonuses: Bonuses not required by a collective bargaining agreement or ordinance
• Pay for break periods: Such as unpaid meal periods that are not considered hours worked
• Benefits and perks: Chiropractic care, massage services, gym access, wellness programs, employee discounts, tuition assistance, adoption assistance, and similar benefits
• Show-up pay: Guaranteed pay for time when an employee reports to work but does not actually perform work.
• Call-back pay: Guaranteed pay when an employee is called back to work outside their regular schedule. *Pay for actual hours worked must be included in the RROP.
• Penalty payments required by state or local law: Such as penalties for schedule changes or short-notice call-ins

Payments That May Be Used to Offset Overtime Pay

Under the FLSA, certain payments may be excluded from RROP but may still be credited toward the employer’s overtime premium obligation.

• Overtime premium:
  If an employer pays premium compensation beyond what the FLSA requires, such as premium pay for hours worked over eight in a day or over 40 in a week, the excess premium may be used to offset overtime pay obligations.
• Premium pay for extra days worked:
  If an employee works on a Saturday, Sunday, holiday, or another day that is not normally a workday, and the employee is paid at least one and one-half times the regular rate, that premium may be used as an offset.
• Premium pay under a collective bargaining agreement:
  Premium payments made under a collective bargaining agreement, or CBA, may be used as an offset if they are paid at a rate of at least one and one-half times the employee’s regular rate.

Because Elizabeth receives $562.50, which exceeds the amount required under the FLSA calculation, the employer satisfies the FLSA overtime requirement in this case.

Summary

This article covered the basic concept of RROP, which serves as the basis for calculating overtime premium pay.

• Payments that must generally be included in RROP include base hourly wages, shift differentials, and nondiscretionary bonuses.
• Payments that may generally be excluded from RROP include gifts, paid leave, benefits and perks, and discretionary bonuses.
• Certain payments, such as double-time pay for holiday work and premium pay required under a CBA, may be used to offset overtime obligations.

Incorrect handling of RROP can lead to unpaid overtime liability and potential litigation risk.

Special attention is required when overlapping rules under state law or a collective bargaining agreement apply.

Author Shinsuke Kiyono

Founder & CEO, Cornerstone Strategy LLC

Shinsuke Kiyono has10+ years of experience in organizational and talent consulting, having worked at Accenture, Deloitte Tohmatsu Consulting, and an AI startup. In October 2024, he founded Cornerstone Strategy LLC, where he supports Japanese companies in the United States in building HR functions and advancing organizational and talent development.

Disclaimer

This article has been prepared by Cornerstone Strategy LLC for informational purposes only. It is based on generally available information, including publicly available guidelines, regulations, and case law related to U.S. human resources, employment, tax practices, organizational and talent development, leadership development, career development, and coaching. It is provided from the perspective of an HR consultant and coach.

Cornerstone Strategy LLC is not a law firm, accounting firm, licensed tax advisory firm, medical provider, psychotherapy provider, counseling provider, or any other licensed professional practice providing legal, tax, medical, psychological, or therapeutic services.

The content of this article does not constitute legal, accounting, tax, medical, psychological, therapeutic, investment, or other professional advice, and should not be relied upon as such. It does not guarantee legal validity, tax treatment, organizational outcomes, HR outcomes, behavioral change, career outcomes, coaching outcomes, or applicability to any specific situation.

Before making decisions related to employment, tax, contracts, compensation, termination, disciplinary action, HR policies, required forms, or any matter involving physical or mental health, you should consult with qualified professionals such as licensed attorneys, certified public accountants (CPAs), tax advisors, medical professionals, psychologists, or other appropriately licensed professionals who are knowledgeable about applicable federal and state laws and professional standards.

Cornerstone Strategy LLC assumes no responsibility or liability for any loss or damages arising from the use of, reliance on, or actions taken based on this article.