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HR MATTERS E-TIPS
THIS WEEK'S TIP: Overtime Issues under the FLSA (Part 1 of 2)
Published by Personnel Policy Service, Inc.
"Your Policy and Compliance Experts Since 1972"
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THIS WEEK'S TIP: Overtime Issues under the FLSA (Part 1 of 2)
Calculating overtime often is more complicated than just paying
nonexempt employees for all hours worked over 40 in a week. You also
have to consider any bonuses paid, how many jobs the employee
worked, and whether the employee actually worked 40 hours. Find out
in this and next week's E-Tips the answers to ten of the most common
questions on overtime. |
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If you need to understand the overtime rule changes, order *FLSA
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Or call Personnel Policy Service at 1-800-437-3735. |
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THIS WEEK'S TIP: Overtime Issues
under the FLSA (Part 1 of 2)
Most employers understand that the federal Fair Labor Standards Act
(FLSA) requires you to pay nonexempt employees overtime for all hours
worked over 40 in a single workweek. ("Nonexempt" refers to all
employees covered by the minimum wage and overtime requirements of
the law, i.e. those that are not exempt from it.) But how do you
determine the appropriate overtime pay rate for a nonexempt employee
who works more than one job or is paid a salary (as opposed to hourly
pay)?
Sorting through the wage and hour rules can be a formidable task even
for seasoned HR professionals. To help you understand the FLSA's
requirements, this and next week's E-Tips address ten of the most
common questions regarding how to calculate overtime payments for
nonexempt employees.
In this week's issue, you'll find out how "regular rate of pay" is
defined,
whether you can average hours, how to pay salaried nonexempt
employees, how to calculate overtime for two jobs, and how bonuses
affect overtime pay calculation.
Next week, you'll learn whether you can pay comp time-off instead of
overtime, how vacation time and shift differentials affect overtime pay,
whether employees can forgo overtime pay, and what state laws regulate
overtime.
1. How is overtime calculated in general and what is an employee's
"regular rate" of pay?
The FLSA requires that every employee covered by the Act who works
more than 40 hours in a single workweek must be paid at least one and
one-half times that employee's "regular rate" for each hour over 40. The
FLSA defines the "regular rate" as all remuneration for employment paid
to or on behalf of the employee, although some items of compensation
(such as certain bonus payments) do not have to be included in the
calculation (see question 5, below). Thus, the employee's regular rate
of
pay per hour for the week must be calculated before the overtime rate
can be determined.
2. 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, and 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. So, 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 rule applies regardless of whether the employee is
paid on a daily, weekly, biweekly, monthly, or other basis.
There are two exceptions to this rule. 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. In addition, 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.
3. 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 $400 and this salary
is
compensation for a regular workweek of 40 hours, the employee's
regular rate of pay is $400 a week divided by 40 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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4. How do you calculate overtime for a nonexempt employee who
works
two jobs with different pay rates?
The FLSA regulations specify two methods for determining an
employee's overtime rate when he works two jobs at different pay
rates.
Typically, when working more than one job, the employee's regular
rate
of pay is calculated as the weighted average of the different rates.
For example, the regular rate of pay for 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.
Since
you have already calculated the regular straight-time rate for 45
hours
($595), you then only owe the additional "half time" premium rate of
$6.61 for each overtime hour worked, calculated as half of the
weighted
average of the two jobs ($13.22 divided by 2 equals $6.61). The
overtime premium for the 5 hours worked over 40 in the week,
therefore,
would equal $33.05 (5 overtime hours x $6.61). Total pay for the
week
would be $628.05 ($595 straight time pay plus $33.05 overtime
premium). The employee's regular and overtime rates may 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
40.
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 hours over 40 spent
cutting the grass is $10.50 per hour ($7.00 times one and one-half).
Conversely, the overtime rate for any hours over 40 spent working as
a
machine operator is $22.50 ($15.00 times one and one-half). This
method of computation is available for hourly employees only and
does
not apply to nonexempt salaried employees.
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5. How do bonuses and incentives affect 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. 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 change to $8.25 per hour ($50
plus
the regular weekly rate of $280, divided by 40 hours) and the
overtime
rate becomes $12.38 per hour for that week.
Under some bonus plans, the bonus is not paid weekly. In that case,
the
employer may disregard the bonus until the time when the bonus is
actually determined and, in the meantime, may pay compensation for
overtime at one and one-half times the employee's base hourly rate,
exclusive of the bonus. When the amount of the bonus is properly
calculated, it must be allocated over the period it covers, and a
revised
overtime rate then must be applied to any hours in excess of 40 that
were worked during that period. The employee should receive
additional
compensation for each workweek including overtime during the period.
The amount will be calculated based on the new overtime premium
using
the bonus, less the overtime premium previously paid.
Other examples of bonuses or incentives that must be included in an
employee's regular rate of pay are nondiscretionary bonuses paid
according to a 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 do not have to be 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 the amount is at least one and one-half
times the
employee's regular rate of pay.
Next week: comp time-off instead of overtime, vacation time, shift
differentials and overtime, forgoing overtime pay, and state laws
regulation. |
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Subscribers to the
Personnel Policy
Manual and
HR Policy Answers
on
CD can find more information on :
*
Terminations in Termination of Employment, Chapter 211
*
Overtime and exemptions in Hours of Work, Chapter 207
*
FMLA in Leaves of Absence, Chapter 703
Not a subscriber? If you would like to order any of these policy
chapters,
you can go to
http://www.hrpolicyanswers.com/xstore/ |
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Information provided in HR Matters E-Tips is researched and reviewed
by the HR experts at Personnel Policy Service as well as employment
law attorneys. However, it is not intended as legal advice. Readers are
encouraged to seek appropriate legal or other professional advice.
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