Written by: Andrew Dearing, Trailer Makers Insurance
The Fair Labor Standards Act (FLSA) is cracking down on employers who fail
to pay their employees overtime in accordance with state and/or federal
law. By using the following tips, you should be able to properly calculate
overtime pay and when it’s required by law.
Let’s start with properly classifying your employees as exempt
or non-exempt. The difference is that non-exempt employees are
entitled to overtime compensation of 1.5X their regular rate. Job
duties will primarily determine if the employee is exempt from over-
time. However, even if you pay a non-exempt employee a salary, that
does not make them exempt from overtime pay. If a non-exempt
employee is paid a salary, the employer must convert their salary to
a regular hourly rate to determine their overtime rate.
Regular rate of pay is based on hours worked. It does not in-
clude holiday, PTO/vacation time, or other fringe benefit payments
such as gifts, discretionary bonuses, benefit plan contributions,
or reimbursement for work-related expenses. It includes wages,
commissions, non-discretionary bonuses, shift differentials, and
some on-call payments.
To qualify as a discretionary bonus, the amount of the payment must
be determined within the sole discretion of management. A key to
maintaining the discretionary status of a bonus is to vary the bonus
amounts to coincide with company performance. Paying a discre-
tionary bonus that is regularly paid each year is not advised as it
may lose its discretionary status if the employees come to expect
the payments.
Conversely, a non-discretionary bonus would include: production
bonuses, retention bonus, attendance bonus, quality assurance
bonuses, cost of living bonus or a bonus that is intended to attract
employees to an isolated or less desirable job or job site. The easiest
way to spot a non-discretionary bonus is if it is tied to some type of
metric. If it is, it must be included within the regular rate of pay and
will then increase the amount of overtime pay that will be owed.
Another important item is compensable time or hours. The FLSA
has a continuous workday principle where all hours between the
beginning and the end of the workday must be paid. It includes ANY
hours the employer has required work or the employee has been
allowed to work. This includes the putting on and taking off protec-
tive gear and uniforms, pre-and-post work activities, travel time, call
time, training and testing.
Non-exempt employees must record all hours worked daily. Employ-
ers should ensure accuracy of these records by having the employee
sign their time
records
or
any
changes
made.
Train
your managers
and employees
to understand
“off the clock” and
to recognize what
are recordable work-
ing hours. By having
your pay practices in writ-
ing and having them signed off
by the employee, the employee
will understand the policy and will
report any errors
immediately.
So, how do you pay overtime? Overtime must
be cal-
culated on a workweek basis defined by a fixed, regularly occurring,
7-day period (or 168 hours). You cannot average hours over a pe-
riod of two weeks or more. Even if your company pays bi-weekly
or semi-monthly, calculate overtime by the 7-day workweek. Em-
ployees can be paid on a piece rate, commission, or some other
basis, but all earnings must be converted to an hourly rate (a.k.a.
the regular rate).
Let’s say John makes $12/hour. He works 56 hours in a workweek
and earns $50 in commission (or bonus). Let’s look at the math:
•
•
•
•
•
•
•
Straight time (ST) compensation is 56 hours x $12 an hour +
$50 bonus = $722 (total ST compensation)
$722 (ST)/ 56 hours worked = $12.89 (regular rate)
$12.89 (regular rate) x ½ = $6.45 (half time premium)
$12.89 (regular rate) + $6.45 (half time premium) = $19.34
(overtime rate)
40 hours straight time x $12.89 (regular rate) = $515.60
(ST earnings)
16 overtime hours x $19.34 (OT rate) = $309.44
(OT earnings)
$515.60 (ST earnings) + $309.44 (OT earnings) = $825.04
(total weekly earnings)
continued on page 42
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