Regular rate of pay and the FLSA: why the determination of exempt status is not enough

Purpose - As some time has passed since the enactment of the fairpay overtime initiative of the Fair Labor Standards Act (FLSA), confusion still persists regarding the overtime benefits of employees. This is evidenced by the increased level of litigation and class action lawsuits regarding overtime violations. This article attempts to help clarify for employers a number of key issues to consider in the proper classification of employees and calculation of overtime benefits. Design/methodology/approach - Through analysis of the law and its ramifications, the authors expound upon their previous FLSA Compliance Model and detail the ramifications of numerous opinion letters from the US Department of Labor. Findings - The specific impact of issues such as the use of non‐discretionary bonuses, stock options, and short call premiums are described to assist employers in the retroactive calculation of the overtime benefits for non‐exempt employees who receive non‐discretionary bonuses. The apparent contradictory positions regarding bonuses and stock options are highlighted, the proper manner to account for short call is addressed, and future directions for research are suggested. Practical implications - This paper highlights the importance for employers to consider far more than just their non‐exempt employees’ hourly wage rate in the calculation of employees’ regular rate of pay in order to ensure proactive FLSA compliance. Orginality/value - The value of this paper is that it highlights potential pitfalls for FLSA compliance to practicing managers and yields areas for further consideration by academics in the human resources field.