Overtime pay for a non-exempt employee depends upon the employee's "regular rate" of pay. Part 778 of the regulations contains all of the various ways to determine an employee's regular rate. Under 29 C.F.R. 778.109, an employee's regular rate of pay is an hourly rate, and under 29 C.F.R. 778.107, it must be at least minimum wage. This is true no matter what pay method is used to determine an employee's pay. Regardless of whether a non-exempt employee is paid by an hourly rate, salary, piece rate, day rate, book rate, flag rate, job or task rate, commission, or by some other method or combination of methods, the pay must be converted into an hourly equivalent to arrive at the "regular rate" for overtime computation purposes. See "Calculation of the Regular Rate of Pay" below for the basic way of computing the regular rate.
Under the OBBBA (H.R. 1, enacted in 2025), qualified tips (which would include an employee's share of a tip pool) and FLSA-required overtime pay are partially exempt from federal income tax (but not from other state and federal payroll taxes). Useful guidance regarding the extent to which such payments may be excluded from an employee's gross income is on the IRS website at https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions (click on "No tax on tips (Section 70201)" and "No tax on overtime (Section 70202)").
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