You can exclude vacation pay from ‘Regular rate’ — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

You can exclude vacation pay from ‘Regular rate’

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Q. When we are figuring employees' base pay for overtime calculations, can we exclude their vacation pay? —R.J.D., South Dakota

A. Yes. The Fair Labor Standards Act (FLSA) says nonexempt employees must receive overtime pay equal to one and a half times their “regular rate” of pay for all hours worked in excess of 40 hours in a workweek. Labor Department regulations make clear that vacation pay can be excluded from employees' “regular rate,” and that only hours actually worked need be counted as “hours worked.” That being said, many employers, although under no legal obligation to do so, establish overtime policies that count vacation hours when computing overtime.

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