Is it OK to exclude vacation pay when figuring base rate for overtime? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Is it OK to exclude vacation pay when figuring base rate for overtime?

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Q. When we are figuring employees’ base pay for overtime calculations, can we exclude their vacation pay?

A. Unless there is an agreement or company policy to the contrary (e.g., a collective-bargaining agreement), an employer is not required to include vacation pay in the determination of an employee’s base rate for purposes of overtime calculation.

The regular rate on which overtime pay is calculated includes remuneration (or pay) for employment, and certain payments made in the form of goods or facilities customarily furnished by the employer. The regular rate does not include certain payments excluded by the FLSA, which are inapplicable here.

The regular rate is the average hourly rate, which is calculated by dividing the total pay for employment (except the statutory exclusions) in any workweek by the total number of hours actually worked. In general, hours worked include all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work. Also included is any additional time the employee is “suffered or permitted”—that is, allowed—to work.

Because the employee did not actually work during the period of vacation, do not include it in the calculation of an employee’s regular rate for purposes of overtime.

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