Pay Codes and Gross Pay Basics

In Payroll Infrastructure, you calculate each worker's gross pay and send it to Everee as earning items. Each item has a pay code and an amount. Everee then calculates taxes, deductions, and net pay from those amounts. It doesn't calculate gross pay for you, and it pays the amounts you send.

If you haven't built gross pay calculations before, this page is a starting point. It explains the most common pay codes, and how amounts are typically calculated for each one.

Earning items and pay codes

Every earning you send has these parts:

amount is what's paid. unitCount and unitRate describe how you got there, so a worker or a reviewer can follow the math. When you send them, amount should be unitCount × unitRate, rounded to the cent.

{
  "payCode": "REGULAR_HOURLY",
  "unitCount": 40,
  "unitRate": { "amount": 22.50, "currency": "USD" },
  "amount": { "amount": 900.00, "currency": "USD" }
}

Every company comes with a set of default pay codes, and you can create your own. A pay code's type controls tax treatment:

• TAXABLE_PAY is wages. Tax is withheld according to the rules for the worker being paid.
• NON_TAXABLE_PAY is reimbursements and other non-wage amounts. No tax is withheld.

Of the default pay codes, only REIMBURSEMENT is non-taxable. Every other default code, including MILEAGE and PER_DIEM, is taxable. See Mileage, per diem, and reimbursements for why that matters.

Common pay codes

List pay codes returns every pay code available to a company.

Hourly pay

Regular hours

Regular hourly pay is hours worked × the hourly rate. Send it under REGULAR_HOURLY.

If a worker earns different rates for different kinds of work, send a separate item for each rate, so each one shows clearly on the pay stub:

[
  {
    "payCode": "REGULAR_HOURLY",
    "label": "Warehouse",
    "unitCount": 24,
    "unitRate": { "amount": 18.00, "currency": "USD" },
    "amount": { "amount": 432.00, "currency": "USD" }
  },
  {
    "payCode": "REGULAR_HOURLY",
    "label": "Forklift",
    "unitCount": 16,
    "unitRate": { "amount": 22.00, "currency": "USD" },
    "amount": { "amount": 352.00, "currency": "USD" }
  }
]

Overtime under the FLSA

The federal Fair Labor Standards Act (FLSA) requires overtime for non-exempt employees at at least 1.5 times their regular rate of pay for hours worked over 40 in a workweek.

A few details catch people out:

• The workweek is fixed. It's a recurring period of seven consecutive 24-hour days, set by the employer. It doesn't have to match the pay period. A biweekly pay period holds two workweeks, and overtime is calculated for each workweek separately. You can't average hours across two weeks.
• There's no federal daily overtime or double time. Under the FLSA alone, a 12-hour day isn't overtime unless the week goes over 40 hours. Federal law also doesn't require extra pay for weekends or holidays.
• The regular rate isn't always the base rate. It includes most pay for the work in that week, such as shift differentials, non-discretionary bonuses, commissions, and piece-rate pay. It excludes some kinds of pay, like expense reimbursements, discretionary bonuses, and pay for hours not worked, like vacation and holidays.
• Hours not worked don't count toward the 40. Under the FLSA, paid time off and holidays aren't hours worked.

Qualified and non-qualified overtime

Under the One Big Beautiful Bill Act (OBBBA), employees can deduct qualified overtime compensation from their federal taxable income. Only overtime that the FLSA requires is qualified, and employers report it separately. So overtime is sent under one of two pay codes:

Calculate both the same way. The pay code only says which rule required the overtime. The deduction itself covers only the premium portion of qualified overtime: for overtime paid at 1.5 times the regular rate, that's the extra half. When a state rule and the FLSA both apply in the same week, the hours the FLSA requires go under FLSA_QUALIFIED_OVERTIME, and the rest under FLSA_NON_QUALIFIED_OVERTIME. See State and local rules for an example.

For a worker paid a single hourly rate with nothing else that week, the regular rate is just the hourly rate:

Overtime with more than one rate

When a worker earns more than one rate in a workweek, or earns a shift differential, bonus, or commission that counts toward the regular rate, the regular rate is usually a weighted average:

1. Add up the worker's pay for the week that counts toward the regular rate (their "straight-time" pay for all hours).
2. Divide it by the total hours worked. That's the regular rate.
3. Overtime hours have already been paid at straight time in step 1, so each one is owed an extra half of the regular rate on top.

For example, a worker works 32 hours at $20.00 and then 16 hours at $26.00, for 48 hours in the week:

One way to send that, keeping each job's rate visible, is to pay the first 40 hours as regular time and the last 8 at the $26.00 rate plus the $11.00 premium:

What matters is that the total meets the requirement. A bonus that's paid for a longer period, like a monthly or quarterly bonus, raises the regular rate for each workweek it covers, so it can mean extra overtime is owed for those weeks too. See Fact Sheet #56C.

Piece-rate and per-task pay

Some workers are paid per delivery, per job, or per piece instead of per hour. The amount is units × the rate per unit. Create a pay code for it, like DELIVERIES, with type TAXABLE_PAY, and send the count and rate as unitCount and unitRate.

For a non-exempt employee, piece-rate pay counts toward the regular rate, so overtime is calculated the same way as above: total pay ÷ total hours worked, then half of that for each overtime hour. Total pay for the week also has to meet the applicable minimum wage for every hour worked.

State and local rules

The FLSA is a floor. Many states, and some cities, have their own rules on overtime, minimum wage, meal and rest breaks, and pay for hours like split shifts or reporting time. Where federal and state rules both apply, the worker is owed whichever is more generous.

Some states require daily overtime. For example:

• California requires 1.5× the regular rate for hours over 8 in a workday, and 2× for hours over 12. On the seventh consecutive day of work in a workweek, the first 8 hours are paid at 1.5× and hours over 8 at 2×.
• Alaska, Colorado, and Nevada also have daily overtime rules, each with its own thresholds and exceptions.

The same week can give different results under different rules. A worker in California earning $20.00 an hour works 10, 8, 13, 8, and 6 hours, Monday to Friday, for 45 hours:

Hours already paid as daily overtime generally aren't counted again toward weekly overtime. In this week, the 38 regular hours don't pass 40, so no weekly overtime is added.

The FLSA alone would require overtime for 5 of these hours, the hours over 40. So 5 overtime hours are qualified, and California's extra overtime hour is non-qualified:

Hourly pay resources

• Overtime pay and Fact Sheet #23: Overtime Pay Requirements of the FLSA, U.S. Department of Labor
• Fact Sheet #56A: Overview of the Regular Rate of Pay, U.S. Department of Labor
• 29 CFR Part 778: Overtime Compensation, the federal regulation on calculating overtime
• State Labor Offices, for each state's own wage and hour rules
• State Minimum Wage Laws, U.S. Department of Labor
• Overtime FAQ, California Labor Commissioner's Office
• What to know about the No Tax on Overtime deduction, IRS

Salary

Dividing an annual salary into pay periods

A salary is usually stated as an annual amount and paid in equal parts each pay period. Divide the annual salary by the number of pay periods in a year, and send it under REGULAR_SALARY:

Some years have an extra pay date: 53 weekly pay dates, or 27 biweekly ones. Employers handle this differently. Some keep the per-period amount the same, so the worker earns more that year, and others divide the annual salary by the actual number of pay dates. Choose a policy and apply it consistently.

When a worker starts or leaves partway through a pay period, the salary is prorated. Common methods are a daily rate (the period's salary ÷ workdays in the period × days worked) and an hourly equivalent (see below). Check state rules, and the FLSA salary basis rules for exempt employees, before deducting from a salary for partial periods or absences.

Salary based on hours

Some salaried workers are paid by converting the salary to an hourly equivalent, then multiplying it by hours in the period. The math is the same as regular hourly pay. The hourly equivalent of an annual salary is usually the salary ÷ 2,080 (40 hours × 52 weeks):

Send it under REGULAR_SALARY, with the hours and hourly equivalent as unitCount and unitRate.

Exempt and non-exempt employees

Under the FLSA, some salaried employees are exempt from overtime. To be exempt, an employee generally has to be paid on a salary basis, at or above a minimum salary level, and do work that meets a duties test, such as executive, administrative, or professional work. A salaried employee who doesn't meet the tests is non-exempt, and is owed overtime like an hourly worker.

For a non-exempt employee paid a salary for a 40-hour week, the regular rate is the weekly salary ÷ 40. With the same $62,400 salary, that's $1,200.00 ÷ 40 = $30.00, so each overtime hour is owed $45.00 (1.5 × $30.00). If the worker works 44 hours in the first week of a biweekly period and 40 in the second:

Salary resources

• Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees, U.S. Department of Labor
• State Labor Offices, since some states set their own exemption tests and salary thresholds

Other kinds of pay

Paid time off and holidays

Paid leave is usually hours × the worker's hourly rate, or hourly equivalent for a salaried worker. Pay out a company's leave types with their own pay codes, which start with TIME_OFF_TYPE_. See Managing leave and PTO. The default HOLIDAY, VACATION, and SICK pay codes are also available.

Under the FLSA, paid time off isn't hours worked, so it doesn't count toward the 40-hour overtime threshold, and it isn't part of the regular rate. Extra pay for working on a holiday, like time and a half, is a company policy rather than a federal requirement.

Bonuses and commissions

Send bonuses under BONUS and commissions under COMMISSION. A bonus is often a flat amount. A commission is usually a base, like sales, × a commission rate:

For non-exempt employees, a non-discretionary bonus, one promised in advance or tied to a goal like attendance or production, counts toward the regular rate, and can mean extra overtime is owed. So do commissions. A truly discretionary bonus, where both the decision and the amount are at the employer's discretion, doesn't. See Overtime with more than one rate.

Tips

Send tips under TIPS. The amount is the tips the worker received, from your tip records or a tip pool. Federal and state rules limit how tips can count toward minimum wage, and who can share in a tip pool. See Fact Sheet #15: Tipped Employees Under the FLSA.

Mileage, per diem, and reimbursements

These are usually unit-based. The rates below are only examples:

Whether an amount is taxable depends on how it's paid, not what it's called. Reimbursements paid under an accountable plan, where the worker substantiates the business expense and returns any excess, generally aren't wages. Mileage at or below the IRS standard mileage rate, and per diem at or below the federal per diem rate for the location, are common ways to substantiate an amount. Amounts above those rates, or allowances paid without substantiation, are generally taxable wages.

So choose the pay code by tax treatment:

• For a non-taxable reimbursement, use REIMBURSEMENT, or create your own NON_TAXABLE_PAY pay code, like MILEAGE_REIMBURSEMENT, so the amounts are reported separately.
• For a taxable amount, use a taxable pay code. The default MILEAGE and PER_DIEM pay codes are taxable.
• When part of an amount is over the IRS or federal rate, send the part up to the rate under a non-taxable pay code, and the excess under a taxable one.

Flat allowances, like a monthly phone or vehicle stipend that isn't tied to substantiated expenses, are generally taxable wages. Create a TAXABLE_PAY pay code for each one.

Reimbursements are excluded from the FLSA regular rate, but a taxable allowance may not be. Check whether it counts before leaving it out of an overtime calculation.

• Standard mileage rates, IRS
• Per diem rates, U.S. General Services Administration
• Publication 463: Travel, Gift, and Car Expenses, IRS
• Publication 15 (Circular E), Employer's Tax Guide, IRS, including accountable plans and supplemental wages
• Publication 15-B, Employer's Tax Guide to Fringe Benefits, IRS

Contractor pay

Contractors aren't employees, so overtime and minimum wage rules don't apply to them, and tax generally isn't withheld. Send the amount you've agreed to pay under CONTRACTOR, or another pay code, with units and a rate if the work is billed that way.

Practical tips

• Keep precision until the end. Calculate with the full regular rate and round only each item's amount to the cent. Rounding the rate first can leave the worker a few cents short.
• Calculate overtime per workweek. Even when you pay biweekly or semimonthly.
• Separate FLSA overtime from other overtime. Use FLSA_QUALIFIED_OVERTIME only for overtime the FLSA requires, so qualified overtime is reported correctly.
• Send one item per rate and per kind of pay. It keeps pay stubs readable and makes each amount easy to check.
• Use a pay code for each thing you track. A custom pay code costs nothing, and keeps different kinds of pay separate on pay stubs, reports, and the general ledger.
• Check the minimum wage. For each workweek, total pay for hours worked ÷ hours worked should meet the highest applicable federal, state, or local minimum wage, especially for piece-rate, commission, and tipped workers.

Next steps

• Guide to the Pay Codes API
• Running payroll
• Managing leave and PTO