Paying Overtime Under the FLSA: Part 1 Presented on Wednesday, April 5, 2017
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What Is Our Focus For Today? 5 All about the rules of overtime What are hours worked Tracking hours What payments to include What payments do not need to be included Do the states differ from the FLSA?
Today s Presenter Vicki M. Lambert CPP 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.com offers a subscription payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations.
7 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. There is no limitation on the number of hours an employee may work in any workweek, as long as they are compensated in accordance with the FLSA's requirements.
But Maybe The States Require 8 4 States Require Daily overtime: AK: 8 hour day CA (of course!) after 8 in a day and double time as well after 12 and on the 7 th day CO after 12 in a day NV: paid a base rate of one and one half times the minimum wage or less per hour may be entitled to overtime if they work more than 8 hours in any workday.
But Maybe the States Require 9 Or special overtime: KY: Work 7 days in one work week, overtime on 7 th day OR: certain industries only such as mills, factories or manufacturing
Useful Definitions 10 It does not need to coincide with the calendar week, but may start on any day at any hour that is convenient for the employer.
Portal-to-Portal Act 11 Work Day: The Portal-to-Portal Act of 1947, excludes from hours worked under the FLSA requirements any hours for time spent by an employee "walking, riding, or traveling to and from the actual place of performance of the principal activity or activities" unless these activities are compensable under the terms of a contract, by custom or by practice. The Portal Act also excludes activities performed before or after the employee's principle activities in a workday.
12 Hours Worked No matter what type of time keeping system employers use, problems may arise over the correct treatment of small amounts of scheduled or unscheduled time worked or missed by employees. Employers must pay for all time worked and cannot use rough estimates or arbitrary formulas to compute hours worked
Keeping Track of Hours Worked 13 While the FLSA requires accurate records of hours worked, employers are not required to use time clocks, time cards, or any particular type of time keeping system. If a time clock is used, employers are free to disregard early or late punching by employees who voluntarily arrive early or remain after hours, so long as the employees do not perform any work during these times.
Two Exceptions 14 Rounding of hours De minimis or insignificant timekeeping
Rounding Practices 15 Rounding practices are acceptable Rounding employees' starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.
16 Rounding Example Using the de minimis rule of 5 minutes the employer would round up or down when six minutes are reached either way. Six minutes makes the change at 7 minutes reached but the 7 minute rule requires that the employer get the advantage of 8 minutes out of every 15. You must be able to demonstrate that both ways are in use not just could be used or it is considered arbitrary.
Rounding Example 17 Employee Time Card Shows: Five (5) Minute Rule 8:05 Round back to 8:00 8:06 Round down to 8:15 8:07 Round down to 8:15 5:05 Round back to 5:00 5:06 Round down to 5:15 5:07 Round down to 5:15 Six (6) Minute Rule Round back to 8:00 Round back to 8:00 Round down to 8:15 Round back to 5:00 Round back to 5:00 Round down to 5:15 Seven (7) Minute Rule Round back to 8:00 Round back to 8:00 Round back to 8:00 Round back to 5:00 Round back to 5:00 Round back to 5:00
18 Rounding Example Fact Sheet #53 Some employers track employee hours worked in 15 minute increments, and the FLSA allows an employer to round employee time to the nearest quarter hour. However, an employer may violate the FLSA minimum wage and overtime pay requirements if the employer always rounds down. Employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.
Rounding Example Fact Sheet # 21 19 Let s see how this works when we use the quarter hour method by rounding each punch using the 7 minute rule: 8:02 = 8:00 12:10 = 12:15 1:06 = 1:00 5:05 = 5:00 4 ¼ hours 4 hours 1/4
Rounding Example Fact Sheet # 21 20 By determining the number or hours worked for each series of punches the total hours worked for the workday can be calculated. This is accomplished as follows: 8:02 am to 12:10 pm = 4 hours 8 minutes 1:06pm to 5:05pm = 3 hours and 59 minutes This is a total of 8 hours and 7 minutes. Using the 7 minute rule the employer would round back and the employee would be paid for a total of 8 hours.
De Minimis or Insignificant Timekeeping 21 The de minimis rule applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities.
Definition of Hours Worked 22 The FLSA does not give a definition for hours worked. The closest definition is a provision that specifies the term employ meaning to suffer, let, or permit to work.
The U.S. Supreme Court Has Ruled Hours Worked Are 23 Any time spent in "physical or mental exertion that is controlled or required by the employer." All hours an employee is required to give to an employer. This includes waiting time if it is for the employer's benefit. All the time during a workweek that an employee is required to be on the employer's premises.
Therefore 24 To comply with the FLSA, hours worked need to include not only hours actually performing job duties but also any other hours suffered or permitted to work by the employer for the employer's benefit.
Which Means 25 Work not requested but suffered or permitted is work time. For example: May voluntarily continue to work at end of shift May be piece worker May desire to finish an assigned task May wish to correct errors, prepare time reports or complete other duties The reason is immaterial. If the employer knows or has reason to believe the employee is continuing to work, the time is working time and must be paid.
Therefore 26 In all such cases, it is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. Employers cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so. (29 CFR Section 785.11, 12, & 13.)
Regular Rate of Pay 27 It is a calculated rate and not just the file rate The employer must consider many different payments in accurately calculating the correct rate of pay for overtime hours.
Regular Rate of Pay 28 In addition to the contract or file rate, any additional amounts paid for: shift differential, non-discretionary bonuses promotional bonuses cost of living adjustments
1. Does Not Include Gifts 29 Sums paid as gifts, such as payments in the nature of gifts given during holidays or on other special occasions, or as a reward for service. The amounts of the gifts or payments may not be measured by or dependent on hours worked, production or efficiency. (29 CFR 778.212)
2. Does Not Include Nonworking Hours 30 Payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause.
3. Does Not Include Expenses 31 Reasonable payments for traveling expenses, or other expenses an employee incurs while furthering the employer s interests and that are properly reimbursable by the employer (such as laundering uniforms or buying supplies or materials on behalf of the employer); and other similar payments to an employee which are not made as compensation for the employee s hours of employment.
4. Does Not Include Discretionary Bonuses 32 Sums paid in recognition of services performed during a given period if one of the following three conditions is met: both the fact that payment is to be made and the amount of the payment are at the sole discretion of the employer at or near the end of the period and not according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.
4. Example of Discretionary Bonus 33 Employee A is told to implement a new payroll system on December 31 st It must be done by March 31 st Employee completes task Employer decides to give employee a bonus for her hard work on April 5 th Employee did not know that bonus was coming
4. Example of Nondiscretionary Bonus 34 Employee A is told to implement a new payroll system on December 31 st It must be done by March 31 st Employee told will receive $1300 bonus if completed on time Employee completes task and receives bonus Employee expected bonus worked to earn bonus
4. Bonuses Normally Included 35 Production bonuses Bonuses which are paid for performing work in less than an established standard time Bonuses which are paid when certain types of merchandise are sold through an employee s effort Cost of living bonuses Attendance bonuses Bonuses paid as an incentive to attract employees to an isolated or otherwise undesirable job site
36 5. Does Not Include Profit Sharing The payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift savings plan, which meet additional requirements set forth in the regulations.
37 6. Does Not Include Health or Life Contributions irrevocably made by an employer to a trustee or third person according to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits to employees.
7. Does Not Include Premium Pay 38 Extra compensation paid at a premium rate for certain hours worked by an employee because such hours are hours worked in excess of eight in a day, or in excess of 40 hours in the week, or in excess of the employee s normal working hours or regular working hours, as the case may be. Such extra compensation may be creditable toward overtime compensation. (29 CFR 778.202)
8. Does Not Include Premium Pay 39 Extra compensation provided by a premium rate for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek. The premium rate may not be less than one and one-half times the rate established in good faith for work performed in non-overtime hours on other days. Such extra compensation may be creditable toward overtime compensation. (29 CFR 778.203, 29 CFR 778.205)
Payments for Suggestions? 40 No hard and fast rule on this one as suggestion plan is very broad term Can be excluded if no relations to the earnings of the employee at his job, and The prize is a bona fide award (not substitute for wages), and No employee is required to participate or led to believe that he will not merit promotion unless he submits suggestions, and
Payments for Suggestions? 41 The invitation to submit suggestions is general in nature, and No time limit to submit suggestion, and The employer has no notice or knowledge the employee is submitting the suggestion until it is submitted
Regular Rate of Pay 42 Is an hourly rate Employers not required to pay employees by the hour but may pay by the hour, piece, salary, commission or other type of payment Overtime must be computed on an hourly basis
43 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.
Methods for Calculating Overtime 44 FLSA way: This requires calculating all the straight time due and adding the overtime premium to reach 1 ½ the employee s regular rate of pay. It is used when additional compensation other than straight time and overtime hours are paid. Example: when the employee receives a nondiscretionary bonus.
Doing the Math Following the Steps 45 This will be done in our next webinar of this series
Additional Resources 46 www.dol.gov 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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