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Calculating
Overtime
When
Employees Must Be Paid
Deductions
from Exempt Employees Pay
Calculating Overtime
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When
calculating overtime, can you consider the average number of hours
an employee works over several weeks?
Generally, no. The FLSA requires employers to pay overtime for all
hours worked over 40 in a single workweek period; the hours may not be
averaged over two or more weeks. A workweek is defined as a fixed period
of 168 hours or seven consecutive 24-hour days. Thus, if an employee works
30 hours one week and 50 hours the next, he must receive overtime
compensation for the hours over 40 that he worked in the second week (even
though the average number of hours for the two weeks is 40). This is the
case regardless of whether the employee is paid on a daily, weekly,
biweekly, monthly, or other basis.
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There are two exceptions to this rule: (1) hospitals and residential
care facilities are permitted to establish a 14-day period in lieu of the
seven-day workweek for purposes of computing overtime, if the affected
employees agree; and (2) public agencies may elect to pay fire protection
and law enforcement employees overtime after they have worked a set number
of hours (212 hours for fire protection employees and 171 hours for law
enforcement employees) per work period (defined as 28 consecutive days)
instead of after 40 hours in a single workweek.
How do you calculate pay and overtime for a salaried, nonexempt
employee?
For employees who are not paid a regular hourly rate (such as those
whose compensation is determined on a salary, piece-rate, or commission
basis), you must determine what their regular hourly rate would be based
on their total compensation. The regular hourly rate is computed by
dividing the salary by the number of hours the salary is intended to
compensate. For example, if an employee is hired at a salary of $350 and
this salary is compensation for a regular workweek of 35 hours, the
employee’s regular rate of pay is $350 a week divided by 35 hours, or
$10 an hour. If the employee works overtime, he is entitled to receive $10
for each of the first 40 hours and $15 (one and one-half times $10) for
each hour thereafter.
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How do you calculate overtime for a nonexempt employee who works two
jobs with different pay rates?
There are two methods for determining an employee’s overtime rate
when he works two jobs at different pay rates. The first way involves
calculating the employee’s regular rate of pay by taking the weighted
average of the two jobs. To find the weighted average, you compute the
employee’s total earnings for the week and divide this by the total
number of hours spent on both jobs. Once you have determined the weighted
average, overtime will be calculated as one and one-half times this
average. For example, the regular rate of an employee who works 35 hours
per week at $15 per hour as a machine operator ($525) and works 10 hours
that same week at $7 per hour cutting the grass outside the plant ($70) is
$595 divided by 45 hours or $13.22 per hour. Thus, the overtime rate for
this employee is one and one-half times $13.22, or $19.83 per hour,
regardless of which job the employee performs during the extra hours. The
employee’s regular and overtime rates will vary from week to week with
the number of hours spent performing each job.
Alternatively, an employer and employee may agree (before the work is
performed) that the overtime rate will be based on the regular rate that
applies to the type of work performed during the hours in excess of forty.
Therefore, if an employee spends 35 hours in a week working as a machine
operator at $15 per hour, and five hours a week cutting the grass at $7
per hour, the overtime rate for any additional hours spent cutting the
grass is $10.50 per hour (one and one-half times $7). Conversely, the
overtime rate for any additional hours spent working as a machine operator
is $22.50 (one and one-half times $15). This method of computation is
available for hourly employees only and does not apply to nonexempt
salaried employees.
How do bonuses and incentives affect a nonexempt employee’s overtime
pay?
Bonuses and incentives that are dependent on hours worked,
productivity, or efficiency must be included in determining an employee’s
“regular rate” of pay, since the “regular rate” is the basis for
determining the overtime rate. For example, an hourly employee who earns
$7 per hour in a 40-hour workweek has a “regular rate” of pay of $7
per hour and an overtime rate of $10.50 (one and one-half times $7). If
that same employee received a $50 production bonus for that week, the
employee’s regular rate of pay would be $8.25 per hour ($50 plus the
regular weekly rate of $280, divided by 40 hours) and the overtime rate is
$12.38 per hour for that week.
Under some bonus plans, the bonus is paid less than weekly. In this
case, the employer may disregard the bonus until the time when the bonus
may be determined and may pay compensation for overtime at one and
one-half times the employee’s hourly rate, exclusive of the bonus. When
the amount of the bonus is known, it must be allocated over the period it
covers, and a revised overtime rate must be applied to any hours in excess
of 40 that were worked during that period. The employee then should
receive additional compensation for each workweek that he worked overtime
during the period equal to one-half of the hourly rate of pay allocable to
the bonus for that week multiplied by the number of overtime hours worked
during the week.
Other examples of bonuses or incentives that must be included in an
employee’s regular rate of pay are nondiscretionary bonuses paid
according to contract; efficiency bonuses for completing work in less than
the allotted time; attendance bonuses; and bonuses paid to employees to
work in undesirable locations. Bonuses that are not included in the
regular rate of pay are those received on special occasions (such as
Christmas) as a reward for service and which are not measured by, or
dependent on, hours worked, productivity, or efficiency. In addition,
premium pay for working on holidays, Saturdays, or Sundays does not have
to be included in overtime calculations if it is at least one and one-half
times the employee’s regular rate of pay.
Can you give nonexempt employees compensatory (comp) time-off in lieu
of paying them overtime?
Private employers may not give comp time-off in lieu of overtime.
However, state and local governments can give nonexempt employees
compensatory time off at the rate of one and one-half hours for each hour
of overtime worked, with certain defined limits.
When Employees Must Be Paid
Do employees have to be paid extra for working weekends, nights, or
holidays?
Generally, no. Nonexempt employees must be paid the overtime rate only
for each hour actually worked in excess of 40 hours during a workweek.
Thus, employers are not required to pay the overtime rate for work
performed on a holiday, weekend, or evening, as long as the employee’s
total hours worked in that workweek are less than 40. Employers that
voluntarily pay at least time and one-half for time worked on a holiday,
weekend, or evening also may be able to credit the extra compensation
towards overtime payments for the same week. A few states (such as Rhode
Island), however, require payment of at least time and one-half for
employees who work on certain holidays.
Do on-call employees have to be paid for the time spent waiting to
work?
Generally, you have to pay employees who are on-call only for the time
when they are called in to work. The FLSA requires waiting time to be paid
only if the employees must remain on or so close to the employer’s
premises, or are otherwise restricted, that they cannot use the time
effectively for their own purposes. For example, if the employees only
have to leave word about where they may be reached, they generally are not
considered to be working while on-call since the time can be used for
their own purposes.
In determining whether an employee must be paid for time spent on-call,
courts look at how much control the employer has over the employee and
whether the employee can effectively use the on-call time for personal
purposes. The Ninth Circuit Court of Appeals, in Owens v. Local 169, 971
F.2d 347, amended by 30 WH Cases 1728 (9th Cir. 1992), provided an
instructive list of seven factors that courts have looked at in deciding
whether an employee has use of on-call time for personal purposes: (1)
whether there was an on-premises living requirement; (2) whether there
were excessive geographic restrictions on the employee’s movements; (3)
whether the frequency of calls was unduly restrictive; (4) whether a fixed
time limit for response was unduly restrictive; (5) whether the on-call
employee could easily trade on-call responsibilities; (6) whether use of a
pager could ease restrictions; and (7) whether the employee had actually
engaged in personal activities during on-call time.
Do you have to pay employees when they work unauthorized hours?
According to Department of Labor (DOL) regulations, if you are aware
that an employee is working more time than is required, you must
compensate the employee, even if you did not specifically request the
additional work. For example, an employee voluntarily may continue to work
at the end of the shift to finish an assigned task. If the employer knows
or has reason to believe that the employee is continuing to work, the time
is considered working time that must be paid. It is management’s duty to
prohibit employees, through discipline or other means, from working
additional time if it does not want to pay for the work time. Merely
having a rule against extra work is not enough. You also must make every
effort to enforce the rule.
In addition, employers should not use misleading phrases such as “employees
are not permitted to begin work more than 15 minutes before their
scheduled starting times or to stop work more than 15 minutes after their
scheduled quitting times.” This wording may imply that employees may
work up to an extra 30 minutes each day without counting the time as
working time. The Supreme Court recognized (in Anderson v. Mt. Clemens
Pottery Co., 328 U.S. 680 (1946)) the “de minimis” rule that an
insignificant amount of time does not have to be counted as work time,
such as when an employee spends a few extra seconds or minutes at work.
However, according to the DOL, this rule applies only where “there are
uncertain and indefinite periods of time involved of a few seconds or a
few minutes duration and where the failure to count such time is because
of considerations justified by industrial realities.”
Deductions from Exempt
Employees Pay
What does “salary basis” mean in connection with an exempt
employee?
In addition to meeting certain job duty requirements, the employee
generally must be paid on a “salary basis” to be exempt from the
overtime pay requirements. This means that he is paid a predetermined
amount, which is all or part of his compensation, on a weekly or less
frequent basis. Exempt employees generally must receive their full salary
for any week in which they perform work, regardless of the number of days
or hours worked that week.
Can deductions be made from an exempt employee’s salary for
disciplinary reasons?
Generally, no. However, you may make deductions for infractions of “safety
rules of major significance.” This includes rules relating to the
prevention of serious danger to the worksite or other employees, such as
no smoking rules in explosive plants, oil refineries, and coal mines.
Can deductions be made for full-day absences?
You can make a deduction when an employee is absent for a full day for
personal reasons, for example if he takes an unpaid personal day. You can
also make deductions for a day’s absence due to illness or injury if the
employer has a bona fide plan, policy, or practice that provides
compensation for loss of salary due to sickness or disability (such as a
policy that allows employees to accrue paid sick leave). This is true even
if the exempt employee has not yet qualified for the plan or has exhausted
the plan’s sick leave allowance.
Can deductions be made from an exempt employee’s salary for
partial-day absences?
Generally, if you make deductions from an exempt employee’s pay for
absences of less than a day, you are considered to be treating the
employee as an hourly employee. Therefore, by doing this, you may
jeopardize the employee’s exempt status under the FLSA and become liable
for any overtime worked by the employee. Many employers have attempted to
avoid docking pay and jeopardizing the exemption by requiring exempt
employees to use paid leave for partial day absences. The DOL
traditionally has considered this type of arrangement to be permissible
because the employee does not experience a reduction in compensation. In
addition, there are special rules for exempt public employees allowing
them to be considered exempt even if their pay is reduced for partial-day
absences.
However, several courts have disagreed with the DOL’s position on
partial-day use of paid leave and have determined that this practice does,
in fact, treat an exempt employee like an hourly, nonexempt employee and,
therefore, causes loss of the exemption. On the other hand, a number of
courts have sided with the DOL’s position on this issue. Because of the
split in the courts, you should consult legal counsel if as a private
sector employer you require exempt employees to use paid leave for
absences of less than a day. In addition, exempt employees may resent
being required to use paid leave for partial-day absences, particularly if
they regularly work long hours, i.e., more than 40 per week. In these
cases, they are not entitled to overtime pay even though they put in long
hours, yet they are required to use a few hours of vacation or sick leave
to take care of personal business.
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