Chinese Overtime is a slang term for a type of overtime calculation where the more the employee works, the less their hour rate is. The legal term is Fixed Salary for Fluctuating Hours, covered by 29 CFR 778.114.
A Chinese Overtime Example
Forgetting about any minimum wage laws and special overtime laws of some states like California, let's say that a non-overtime exempt employee's regular rate of pay is $10.00 per hour. After working 40 hours in a workweek, they would have earned $400.00.
Using traditional overtime calculations, work after that 40 hours would be paid out at $15.00 per hour, or 1.5 times the employee's regular rate of pay. Therefore, if the employee works 50 hours, 10 hours would be paid out at $15.00 per hour, so the employee would earn a gross pay of $550 in the workweek. ((40 * $10.00) + (10 * $15.00)) = $550.00.
In a Chinese Overtime scenario, the employer would agree to pay the non-overtime exempt employee a salary of $400.00 a week. If the employee works exactly 40 hours, their rate of pay would be $10.00 per hour. If they worked less, their hourly rate would go up. However, if the employee was to work more than 40 hours, the calculation would be different, and the rate would go down.
In a Chinese Overtime scenario where the employee worked 50 hours a week, their regular rate would be calculated as $400.00 / 50 = $8.00 per hour. There are two ways to then calculate the employee's gross pay in the workweek.
Using method 1, the way the law reads, the employee would earn $8.00 per hour for all 50 hours, and would be paid a 0.5x premium for the hours beyond 40. That works out to ($8.00 * 50) + ($4.00 * 10) = $440.00.
Using method 2, a more traditional overtime calculation is done. You still get to the employee's regular rate of pay by doing the $400.00 / 50 = $8.00 per hour calculation. Then pay the first 40 hours at that rate, and the next 10 at the normal 1.5x multiplier rate. That calculation would look like ($8.00 * 40) + ($8.00 * 1.5 * 10) = $440.00.
Both calculations are mathmatically equivalent. The first is more confusing. Spectrum TimeClock uses the second method.
Chinese Overtime is Under Fire
Some states like Pennsylvania have ruled against Chinese Overtime, stating that it violates minimum wage laws.