Paying Overtime Under the FLSA: Part 2...Paying Overtime Under the FLSA: Part 2 HOUSEKEEPING Credit...

Presented on Monday, April 24, 2017

Paying Overtime Under the FLSA:

Part 2

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All about calculating overtime

FLSA method vs. Alternate or commonly understood method

How to do the basic math for one workweek

How to handle when overtime and the bonus cover multiple workweeks

Salary nonexempt employees

What Is Our Focus For Today?

Vicki M. Lambert, CPP, is President and Academic Director of The Payroll Advisor™, a firm specializing in payroll education and training. The company’s website www.thepayrolladvisor.comoffers a subscription payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations.

Today’s Presenter

Vicki M. Lambert CPP

Let’s Review Our Definition of Overtime

Overtime pay under the Fair Labor Standards Act is computed at 1 1/2 times the regular rate of pay for all hours worked in excess of the 40 hours in a workweek.

Let’s Review the Term Regular Rate of Pay…

Computation of the hourly “regular rate of pay” is calculated as follows:

The total remuneration for the employee (except those excluded by law) in a workweek is divided by the total number of hours actually worked in the workweek.

Doing the Math… Following the Steps

1. Total hours x file rate plus additional pay for workweek – exclusions = Gross pay

2. Amount in Step 1 ÷ total hours worked = regular rate of pay

3. Amount in Step 2 x .5 x hours of overtime = premium pay for overtime

4. Total pay for workweek (step 1) + premium pay for overtime (step 3) = total weekly compensation

Can We Go Back to Step # 3 For a Minute?

Where does the x .5 come in???

When FLSA was written everyone (DOL) assumes the employee is paid for all time worked at straight hours

For example the employee is paid for 41 hours at $1.00 an hour the employee will be paid $41

The “new” concept of overtime was in addition to straight time

Can We Go Back to Step # 3?

Overtime was a premium added to straight time

The employer is expected to calculate all the straight time first then use that to calculate the overtime premium

Hence .5 at the regular rate…the 1 of 1 ½ was already paid with the straight time

All that is owed is the ½

Now an Example with Numbers…

Example Information:

Employee is paid an hourly rate of $15.00

Works 44 hours in the workweek

First the common method

Then the FLSA method

Commonly Used or Alternative Method

40 x $15.00 = $600.00

$15.00 x 1.5 = 22.50

4 x $22.50 = $90.00

$600.00 + $90.00 = $690.00

This uses the time and a half method that most computers use and is acceptable if the employee does not have any additional wages that trigger the required method.

The Proper or FLSA Method…

44 x $15.00 = $660.00

$660.00 ÷ 44 = $15.00

$15.00 x .5 = $7.50

4 x $7.50 = $30.00

$660.00 + $30.00 = $690.00

So what is the difference between the proper method and the commonly understood method of calculating overtime?—NOTHING! BUT WITH A BONUS…

Step by Step Example With Bonus

Same info except employee receives $10 bonus.

Step 1: 44 x $15.00 = $660.00 + $10.00 = $670.00

Step 2: $670.00 / 44 = $15.23

Step 3: $15.23 x .5 = $7.62

Step 4: $7.62 x 4 = $30.48

Step 5: $670.00 + $30.48 = $700.48

Notice the Difference…

Without the added bonus under the FLSA method, both had $690 as the gross

But when the bonus is added it goes to $700.48 under the FLSA method but only $700.00 under the alternate method

$.48 difference than just adding in the $10.

Notice the Difference…

Result: Penalties, fines and interest—you used the wrong

method!

Let’s Do Another Example

A carpenter worked 44 hours last week. In additional to his regular wage of $10.00 an hour, he was paid $50.00 for completing a job on time and on budget.

The Right Way (Using DOL OT Calculator)…

The Wrong Way…

Step 1 40 x $10.00 = $400 + $50.00 = $450.00

Step 2 $10.00 x 1.5 = $15.00

Step 3 $15.00 x 4 = $60.00

Step 4 $450.00 + $60.00 = $510.00

Let’s compare…

Step 1: 44 x $10.00 = $440 + $50.00 = $490.00

Step 2: $490 divided by 44 = $11.14 Regular rate of pay

Step 3: $11.14 x .5 x 4 = $22.28

Step 4: $490.00 + $22.28 = $512.28

Step 1: 40 x $10.00 = $400 + $50.00 = $450.00

Step 2: $10.00 x 1.5 = $15.00

Step 3: $15.00 x 4 = $60.00

Step 4: $450.00 + $60.00 = $510.00

The Right Way The Wrong Way

But What if More than One Work Week Is Involved?

When a nondiscretionary bonus covers a period of time longer than a workweek, it must be apportioned back over the workweeks of the period during which it was earned. If it is not possible or practicable to allocate the bonus on the basis of when the bonus was actually earned, some other reasonable or equitable method must be adopted.

But What if More than One Work Week Is Involved?

For example, allocation of an equal amount for each workweek covered by the bonus. The employee must then receive additional overtime pay for each workweek in which overtime was worked during the period.

Let’s Do Some Math On This One

The Facts: An employee is promised a bonus of $1300 late in December of last year. The project begins the first of January of this year. To earn the bonus the employee must complete the project by the end of the first quarter of this year.

The employee completed the project on time and was paid the bonus the first pay period in the second quarter. In order to complete the project on time the employer worked the following schedule during the quarter in question:

Week #: Total Hours

Worked

Straight

Overtime Hours

1 50 40 10

2 53 40 13

3 59 40 19

4 48 40 8

5 56 40 16

6 51 40 11

7 53 40 13

8 57 40 17

9 53 40 13

10 57 40 17

11 59 40 19

12 48 40 8

13 45 40 5

Totals 689 520 169

The Employee’s Time Cards for the Period

The Methods We Can Use…

First Method:

Cannot actually allocate bonus on when it was earned due to length of time

Can allocate over the payroll weeks in question

This can be done by allocating the bonus to each workweek and recalculating the overtime only.

This method is usually used when the bonus is paid separately from the normal payroll and the additional overtime will be added to a payroll.

Example

Divide the bonus ($1300) by the number of workweeks in the quarter (13) for a result of $100 per workweek.

For a week in which the affected employee worked 48 hours, the increase in the employee’s regular rate is $2.08 ($100 divided by 48 hours)—Week 4 in our example.

One-half of the increase ($1.04) is due for each overtime hour worked.

Example

The employee is due a total of $8.32 in additional overtime pay for that workweek, as a result of the bonus.

The employee would receive $156.04 additional overtime compensation for the quarter in addition to the $1300 bonus on the first payroll of the second quarter.

The math is shown on the next slide

Week #:Total Hours

WorkedCalculations:

Additional Overtime

Due1 50 $100/50 = 2.00 x .5 x 10 =10.00 $10.00

2 53 100/53 = 1.89 x.5 x 13 = 12.29 $12.29

3 59 100/59 = 1.69 x .5 x 19 = 16.06 $16.06

4 48 100/48 = 2.08 x .5 x 8 = 8.32 $ 8.32

5 56 100/56 = 1.79 x .5 x 16 = 14.32 $14.32

6 51 100/51 = 1.96 x .5 x 11 = 10.78 $10.78

7 53 100/53 = 1.89 x.5 x 13 = 12.29 $12.29

8 57 100/57 = 1.75 x .5 x 17 = 14.88 $14.48

9 53 100/53 = 1.8 9 x.5 x 13 = 12.29 $12.29

10 57 100/57 = 1.75 x .5 x 17 = 14.88 $14.48

11 59 100/59 = 1.6 9 x .5 x 19 = 16.06 $16.06

12 48 100/48 = 2.08 x .5 x 8 = 8.32 $ 8.32

13 45 100/45 = 2.22 x .5 x 5 = 5.55 $ 5.55

Total $156.04

Second Method…

It can be done by recalculating the gross for each workweek.

This method is used when the additional overtime will be combined with the bonus payment or all are added to the payroll.

Example:

Employee is paid $20 per hour. Original gross pay included only straight time and overtime hours no additional payments were made. In this example the payroll department would recalculate the gross payroll for each pay week in question to include the $100 per week bonus. The employee would then be due $1456.04 additional compensation. This is the additional overtime plus the bonus.

Week #:Total Hours

Worked

Original Gross Pay

Calculation of New Gross PayNew Gross

Amount

Difference Due

Employee

1 50 $1100.00 50 x $20 = $1000.00 + $100 = $1100.00/50 = $22.00 x .5 x 10 = $110.00 + $1100.00 = $1210.00

$1210.00 $110.00

2 53 1190.00 53 x $20 = $1060.00 + $100 = $1160.00/53 = $21.89 x .5 x 13 = $142.29 + $1160.00 = $1302.29

1302.29 112.29

3 59 1370.00 59 x $20 = $1180.00 + $100 = $1280.00/59 = $21.6 9 x .5 x 19 = $206.06 + $1280.00 = $1486.06

1486.06 116.06

4 48 1040.00 48 x $20 = $960.00 + $100 = $1060/48 = $22.08 x .5 x 8 = $88.32 + $1060.00 = $1148.32

1148.32 108.32

5 56 1280.00 56 x $20 = $1120.00 + $100 = $1220.00/56 = $21.79 x .5 x 16 = $174.32 + $1220.00 = $1394.32

1394.32 114.32

6 51 1130.00 51 x $20 = $1020.00 + $100 = $1120.00/51 = $21.96 x .5 x 11 = $120.78 + $1120.00 = $1240.78

1240.78 110.78

7 53 1190.00 53 x $20 = $1060.00 + $100 = $1160.00/53 = $21.89 x .5 x 13 = $142.29 + $1160.00 = $1302.29

1302.29 112.29

8 57 1310.00 57 x $20 = $1140.00 + $100 = $1240.00/57 = $21.75 x .5 x 17 = $184.88 + $1240.00 = $1424.88

1424.88 114.88

9 53 1190.00 53 x $20 = $1060.00 + $100 = $1160.00/53 = $21.89 x .5 x 13 = $142.29 + $1160.00 = $1302.29

1302.29 112.29

10 57 1310.00 57 x $20 = $1140.00 + $100 = $1240.00/57 = $21.75 x .5 x 17 = $184.88 + $1240.00 = $1424.88

1424.88 114.88

11 59 1370.00 59 x $20 = $1180.00 + $100 = $1280.00/59 = $21.6 9 x .5 x 19 = $206.06 + $1280.00 = $1486.06

1486.06 116.06

12 48 1040.00 48 x $20 = $960.00 + $100 = $1060/48 = $22.08 x .5 x 8 = $88.32 + $1060.00 = $1148.32

1148.32 108.32

13 45 950.00 45 x $20 = $900.00 + $100 = $1000.00/45 = $22.22 x .5 x 5 = $55.55 + $1000.00 = $1055.55

1055.55 105.55

Totals $15470.00 $16926.04 $1456.04

Third Method…

Take the entire pay for the quarter for straight time and overtime, adding in the bonus and recalculating the wages due, subtracting what has been paid and paying the employee the difference as the bonus.

Normally results in a slight overpayment to the employee due to rounding difference. Could be as much as $5 to $10. However, most payroll departments prefer this method due to the amount of time saved in performing calculations.

Example

The employee was paid $10,400 in straight time wages: 520 x $20 = $10,400. And $5070 in overtime wages for the quarter: $20 x 1.5 x 169 = $5070. For a total gross wages of $15,470.00.

To calculate the additional overtime wages due the employee:

Example

Take the total hours worked and multiply that by the hourly rate of $20.

Add the bonus into the total gross wages

Divide step 2 by the total hours

Take the calculation in step 3 and multiple by .5 then multiple by the number of overtime hours

Add the amount in step 4 to the gross wages in step 2

Here is the Math…

Step 1: 689 x 20 = $13,780.00

Step 2: $13780.00 + $1300.00 = $15,080.00

Step 3: $15,080.00/689 = 21.89

Step 4: 21.89 x .5 x 169 = $1849 .71

Step 5: $1849 .71 + $15,080.00 = $16,929.71

Here is the Math…

Step 5 is the new amount due the employee including the bonus of $1300.

Now minus the original gross already paid of $15,470.00 and that results in a payment of $1459.71.

$1300 of the payment is the original bonus and $159.71 is for the additional overtime due.

Why the Difference in this Method?

As noted above this overtime due figure is slightly higher than the other 2 due to rounding. So in this example the employee would receive an additional $3.67 in overtime wages. However, common practice is to use this method to save time in the payroll department.

Multiple Rates of Pay

When an employee in a single workweek works at two or more different types of work for which different straight time rates have been established, the regular rate of pay for that week is the weighted average of all the rates.

Example

At Secrest Corp this week Paul worked to cover for other employees on vacation. His time card reads as follows:

Day Per Hour Rate Number of Hours Worked

Monday $12.00 8

Tuesday $11.00 8

Wednesday $11.25 8

Thursday $10.75 9

Friday $10.50 10

Total Hours 43

Step 1… Calculate the Earnings for Each Day

Day Calculation Amount

Monday 8 x $12.00 = $96.00

Tuesday 8 x $11.00 = $88.00

Wednesday 8 x $11.25 = $90.00

Thursday 9 x $10.75 = $96.75

Friday 10 x $10.50 = $105.00

Total $475.95

Then…

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay

$475.75 divided by 43 = $11.06 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours

$11.06 x .5 x 3 = $16.59

Finally Step 4…

Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3)

$475.75 + $16.59 = $492.34

total weekly compensation

Weekly Salary Basis

If the employee is paid on a weekly salary basis, the regular hourly rate is reached by dividing the salary by the number of hours which the salary is intended to compensate.

If the salary covers a period longer than a workweek, such as biweekly, monthly, etc., it must be converted to a weekly equivalent.

Fixed Work Weeks

Where employees are paid a salary for a fixed workweek, (salary intended to cover only a specified number of hours per week, i.e. 37 1/2 or 40) total earnings are divided by the number of "fixed" hours rather than the number of hours worked.

Example: Joe is hired at a salary of $500 per week. It is understood that this salary is compensation for a regular workweek of 35 hours

or $14.29 per hour. When overtime is worked Joe is entitled to receive $14.29 for each of the first 40 hours and $21.44 (time and

one half) for each hour thereafter.

Biweekly Payroll Example Fixed Work Week

Sylvia is hired at a weekly salary of $500 a week. The salary is based on a fixed workweek of 40 hours. She worked 50 hours her first week and 45 hours her second week of a biweekly payroll

The Math…

$500 40 = $12.50

$12.50 x 10 = $125.00

$12.50 x .5 x 10 = $62.50

$500 + $62.50 + $125.00 = $687.50

$500 40 = $12.50

$12.50 x 5 = $62.50

$12.50 x .5 x 5 = $31.25

$500 + $62.50 + $31.25 = $593.75

Week One Week Two

The total is: $687.50 + $593.75 = $1281.25

Fluctuating Work Weeks

Where employees are paid a salary for a fluctuating workweek (salary intended to compensate for an entire workweek, regardless of the number of hours actually worked), total earnings are divided by the number of hours actually worked. And since straight-time compensation has already been paid, the employee must receive additional overtime pay for each overtime hour worked in the workweek at not less than one half the regular rate.

Example Fluctuating Work Week

Brenda works no more than 50 hours and is compensated on a fluctuating workweek basis at a weekly salary of $400 per week. During the course of four weeks she works 40, 44, 50 and 48 hours.

To get the regular rate of pay the total hours are divided into the salary of $500 for each of the four weeks.

Let’s Do the Math…

The regular rate of pay in each of these workweeks is $10.00, $ 9.09, $8.00 and $8.33. Since the straight time for all hours worked has already been paid, only additional half time pay is due.

Workweek Hours Math

1 40 $400/40 = $10.00

2 44 $400/44 = $9.09

3 50 $400/50 = $8.00

4 48 $400/48 = $8.33

Let’s Do the Math…

Brenda would be paid the following for each of the workweeks:

Week 1: $400.00

Week 2: $418.18 ($9.09 x .5 x 4 = $18.18)

Week 3: $440.00 ($8.00 x .5 x 8 = $33.36)

Week 4: $433.36 ($8.33 x .5 x 8 = $33.36)

Deductions

If the employer made deductions for such items as "board, lodging, or other facilities' furnished to the employee, or for union dues, savings bonds, etc., these do not effect the regular rate of pay computations. The employee's regular rate of pay is computed before the deductions are made.

Non-Cash Payments

Where payments are made to employees in the form of goods or facilities that are regarded as part of wages, the fair market value of such good or facilities must be included in the regular rate of pay calculation.

Example: an employer furnishes lodging to an employee in addition to cash wages. The reasonable cost or fair

market value of the lodging (per week) must be added to the cash wages before the regular rate is determined.

Additional Resources

https://www.dol.gov/whd/overtime/etools.htm

Overtime calculator:http://www.dol.gov/elaws/otcalculator.htm

Hours worked: http://www.dol.gov/elaws/esa/flsa/hoursworked/default.asp

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Paying Overtime Under the FLSA: Part 2...Paying Overtime Under the FLSA: Part 2 HOUSEKEEPING Credit...

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