Chapter 2: Computing Wages and Salaries

Tips Example 2-2

James Rudolph, a waiter, earns a weekly wage of $100.00 for a 40-hour workweek and receives tips of $100.00 each week. Even though the hourly rate paid to Rudolph (100 / 40 = $2.50) exceeds the minimum wage rate of $2.13, the employer must pay Rudolph an extra $90.00 so that the tips received plus the wages paid equal the minimum wage of $7.25 per hour. $7.25 x 40 = $290.00 Weekly wage = $100.00 Tips Received = $100.00 Extra weekly pay = $90.00 $100 + $90.00 = $190.00; $190.00 / 40 hours = $4.75/hour All of the tips are the property of the employee and must be retained by the tipped employee unless there is a pooling of tips among the tipped employees. If employees are required to share the tips with employees not automatically tipped such as janitors, dishwashers, chefs, etc., the tip credit will be lost; however, voluntary arrangements among employees to pool tips will not eliminate the credit. The tip must be offered by the customer free from pressure, and the amount should not be based on a dictated employer policy. If any portion of the tips is turned over to the employer, no credit is allowed. Service charges imposed on patrons by the employer do not count toward the tip credit. The IRS has begun to classify automatic gratuities (e.g., event fees, room service charges, and bottle service charges) as service charges which are treated as wages subject to tax withholdings. This will entail more paperwork and extra cost to the employer. An alternative tip-reporting system can be used in which the employer and the IRS determine a predetermined tip rate for the employer's various occupations. At least 75 percent of the employees must sign agreements to report tips at or above the predetermined rate. The employer is then required to report any employee violations to the IRS. In cases of two jobs performed by one worker, the tip credit can only be applied to the job that qualifies as tipped employment. Karl Marx worked for the Hilton Hotel in Las Vegas as a waiter. In addition, on his days off, he worked on Hilton's maintenance crew. Hilton can only claim the tip credit against Marx's wages on his waiter job. Nevada-based Caesar's Entertainment Group must pay $175,128 in back wages and liquidated damages to 889 employees at two Indiana casinos that it operates. The casinos used deductions from employees' wages to cover the costs for individual employees' casino gaming licenses required by the Indiana Gaming Commission. These deductions brought employees' pay below $7.25 per hour. Companies that accept credit cards can deduct the amount of the credit card company's administrative fee that relates to the tip from the tip amount before giving it to the employee. These tips must be paid to the employee by the next regular payday. Under state laws, the states' tip credit percentage (different in each state) is applied to the federal minimum wage to calculate the actual tip credit and the resulting minimum wage required under state law. In states where the tip credit differs from the federal, employers must determine the credit and the resulting minimum wage under both federal and state law and pay their employees the higher cash wage.

4. According to the FLSA, a workweek is:

A fixed and regularly recurring period of 168 hours -- seven consecutive 24-hour periods.

Wage and Hour Provisions (Willful Violations)

Fines of up to $2,074. Unpaid fines can result in court-ordered imprisonment.

3. According to the FLSA, Wages include:

The remuneration or compensation of paid employees.

Penalties

A number of remedies may be applied for violations of the FLSA: Backpay—to satisfy the requirements of the law. Liquidated damages—equal to the amount of backpay and overtime. Civil penalties (discussed below)—employees engaged in a "course of conduct." "Hot goods" injunction—bars shipment of any goods manufactured in violation of the FLSA. Attorney fees and court costs—if employees win a lawsuit. The civil and criminal penalties that could result are: Employees have two years to sue for pay mistakes involving unpaid minimum wage and unpaid overtime, and three years to sue for willful mistakes.

15. Carson Beck has worked for 4 months at the local Worst Buy Shop. As a full-time student at the local university, he is being paid an hourly rate $5.40 an hour. One week, Beck worked 39 hours.

Beck's earnings for the week are $210.60 (39 x $5.40 = $210.60) Is the hourly rate a violation of the FLSA? Yes ($7.25 x .85 percent = $6.1625 rounded to $6.17) If the hourly rate is in violation of the FLSA, what is the amount the shop should pay Beck for the week? When computing the per hour rate, use the government's rounding rule in your calculation. ($6.17 x 39 hours = $240.63)

NOTE: Unless instructed otherwise, calculate hourly rates and overtime rates as follows:

Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places (round the hourly rate to 2 decimal places before multiplying by one and one-half to determine the overtime rate.) If the third decimal place is 5 or more, round to the next higher cent. If the third decimal place is less than 5, simply drop the third decimal place. Examples: Monthly rate $1,827 Weekly rate ($1,827 x 12)/52 = $421.615 rounded to $421.62 Hourly rate $421.62/40 = $10.540 rounded to $10.54 O.T Rate $10.54 x 1.5 = $15.81 Also, use the minimum hourly wage of $7.25 in solving these problems and all that follows.

Example #3 Calculating Gross Paycheck

Salary quoted Xi, a nonexempt employee, is $2,200/month. She's paid biweekly and worked 11.5 hours OT in one pay period. $2,200 x 12 = $26,400 annual $26,400/26 = $1,015.38 each biweekly pay period $26,400/52 = $507.69 weekly rate $507.69/40 = 12.69 regular hourly rate $12.69 x 1.5 = $19.04 OT rate $1,015.38 + ($19.04 x 11.5) = $1,234.34 gross

Employees of a Corporation

Managers, superintendents, supervisors, department heads, and other executives of a corporation are considered employees under the FICA tax law. All officers, such as the president, vice president, secretary, and treasurer, are also employees of the corporation. Their salaries are taxable the same as the wages paid to other employees. A director of a corporation who performs no services other than attending and participating in meetings of the board of directors is not an employee.

Blue-Collar Workers

The exemption from overtime pay based on the duties and salary tests does not apply to blue-collar workers (manual workers). No matter how highly paid, these workers are still entitled to overtime pay. This also applies to police officers, firefighters, paramedics, emergency medical technicians, and licensed practical nurses. Note: Putting someone on salary doesn't mean he/she is exempt!!

Biometrics

The need for greater security and precision has recently produced a more affordable alternative to companies that are searching for time and attendance systems. A biometric time system uses a time clock that reads an employee's unique fingerprint or hand geometry (size and shape) to validate the employee. This technology is also available in other forms—voice recognition, iris scan, and even whole-face recognition. http://www.timeclockeshop.com/ In this era of heightened attention to security, biometric time recording systems are becoming reasonably priced and more readily accepted.

Determine Employee's Work Time

To avoid paying for time not actually spent on the job and to eliminate payment for unnecessary overtime work, employers must know what types of employee activities count as working time under the law. Generally, the hours counted as working time include all the time that employees actually work or must be on duty. A distinction must be made between an employee's principal activities and the preliminary and postliminary activities.

Travel Time

The time spent by employees traveling to and from work needs to be counted as time worked only if contract, custom, or practice so requires. In some situations, however, travel time between home and work counts as time worked. If an employee who regularly works at a fixed location is given a special one-day work assignment in another city, time worked includes the travel time. Dana MacAvoy receives an emergency call outside regular working hours and must travel a substantial distance to perform a job away from MacAvoy's usual work site for one of the employer's customers. The travel time counts as time worked. When performed during the workday as part of an employee's principal activities, the travel time counts as time worked. In addition, when traveling between workdays from one city to another, the travel time counts as working time when the hours correspond to regular working hours, even though the hours may occur on Saturday and Sunday. Example: Rena Thorpe travels throughout the city to various job sites during regular working hours, 9 a.m. to 5 p.m., Mondays through Fridays. Such travel time counts as work time. If Thorpe is sent on a trip requiring travel on Saturday and Sunday to be at a job the first thing Monday morning, the travel time on Saturday and Sunday between the hours of 9 a.m. and 5 p.m. counts as time worked, but travel time before 9 a.m. and after 5 p.m. does not count.

Statutory Nonemployees Today, nearly 25 percent of the workforce is made up of temporary workers, consultants, and independent contractors.

There are two categories of statutory nonemployees—direct sellers and licensed real estate agents. For federal tax purposes, they are considered to be self-employed as long as their earnings are based on the amount of sales and their services are performed under a written contract stating that they will not be treated as employees for federal tax purposes.

5. According to the FLSA, Exempt employees are:

Those workers exempt from some, or all, of the FLSA requirements, such as minimum wage, equal pay, and overtime pay.

14. Commissions are considered to be payment for hours worked:

and must be included in determining the regular hourly rate.

13. The regular rate of pay for a salaried nonexempt employee is found by:

Dividing the number of hours expected to be worked each week into the weekly salary.

11. If the overtime premium approach is used, overtime premium pay is calculated by:

multiplying the overtime hours by an overtime premium rate of one-half the regular hourly rate.

20. John Escobar is paid an hourly rate of $18.50 per hour, and he worked 49 hours this week. His gross pay is:

$18.50 x 40 hours = $740.00 regular earnings ($18.50 x 1.5) x 9 = $249.75 overtime earnings Total gross pay = $989.75 John Porter is an hourly employee of Motter Company located in New York City. This week, Porter had to travel to the company's regional office on Albany. He left Sunday at noon and arrived in Albany at 3:00 PM During the week he worked his normal 40 hours in the Albany office (Monday through Friday--9 A.M. to 5 P.M.). In addition, he attended the company's mandatory 5-hour work training session on Wednesday evening. Peter's hourly rate of pay is $12.60 per hour. a. Porter's overtime earnings for the week are: ($12.60 x 1.5) x 8 OT hours = $151.20 b. Porter's total earnings for the week are: $12.60 x 40 = $504.00 + $151.20 = $655.20

25. Nancy Seigle earns a monthly salary of $3,100 for a 35-hour week. For overtime she receives her regular hourly rate of pay for the hours up to 40 and time and one-half beyond 40 hours any week. For this semimonthly pay period, Seigle worked 8 hours overtime--one 1 hour was beyond 40 in any week, and she was paid $1,723.74 based on:

$3,100 x 12 = $37,200 annual $37,200 / 52 = $715.38 weekly $715.38 / 35 = $20.44 hourly $20.44 x 1.5 = $30.66 overtime $1,550.00 (semimonthly pay) + (7 x $20.44) + (1 x $30.66) = $1,723.74 Sheila Williams, a medical secretary, earns $2,700 monthly for a 35-hour week. For overtime work, she receives extra pay at the regular hourly rate up to 40 hours and time and one-half beyond 40 hours in any week. During one semimonthly pay period, Williams worked 10 hours overtime. Only 2 hours of this overtime were beyond 40 hours in any one week. Compute the following amounts: $2,700 x 12 = $32,400 annually $32,400 / 52 = $623.08 weekly $623.08 / 35 = $17.80 or 81 hourly $17.80 x 1.5 = $26.70 overtime (8 x $17.80) $142.40 + (2 x $26.70) $53.40 = OT Earnings $2,700 / 2 = $1,350 semimonthly $1,350 + (8 x $17.80) 142.40 + (2 x $26.70) 53.40 = Total a. The regular semimonthly earning: $1,350.00 b. The overtime earnings: $53.40 c. The total earnings: $1,545.80

7. Per the FLSA, a tipped employee is one who receives:

$30.00 or more per month in tips. An employer can credit up to $5.12 of a tipped employee's minimum wage as coming from tips actually received.

John Hazelton earns $412 a week for a workweek consisting of 40 hours. If Hazelton worked 43 hours in a particular week, compute gross pay as follows:

$412.00 / 40 hours = $10.30 hourly wage rate $10.30 hourly wage rate x 1.5 = $15.45 OT wage rate Gross pay = $412.00 + (3 hours x $15.45) = $458.35 Barbara Ripa receives $680.00 for a regular 40-hour week and time and one-half for overtime. For a workweek of 44 hours, compute the following amounts: $680/40 = $17.00 hourly wage rate $17.00 x 1.5 = $25.50 OT wage rate Gross pay = $680 + (4 hours x $25.50) = $782 a. Regular earnings: $680.00 b. Overtime earnings: $102.00 c. Total earnings: $782.00

16. James Rudolph, a waiter, earns a weekly wage of $100.00 for a 40-hour workweek and receives tips of $100.00 each week. Even though the hourly rate paid to Rudolph ($100.00 / 40 hours = $2.50) exceeds the minimum wage rate of $2.13, the employer must pay Rudolph an extra $90.00 so that the tips received plus the wages paid equal the minimum wage of $7.25 per hour.

$7.25 x 40 hours = $290.00 Weekly wage ($100.00) Tips received ($100.00) Extra weekly pay ($90.00) $100.00 + $90.00 = $190.00; $190.00 / 40 hours = $4.75/hour Ben Lieber is a waiter at Harbor House, where he receives a weekly wage of $79.60 plus tips for a 40-hour workweek. Lieber's weekly tips usually range from $270 to $390. Round following to nearest cent: Under the Fair Labor Standard Act, the minimum amount of wages that Lieber must receive for a 40-hour workweek is $85.20 ($2.13 x 40 hours) Since Harbor House is in violation of the FLSA, the additional amount it should pay Lieber each week to meet the minimum wage requirement for a tipped employee is $5.60 ($85.20 - $79.60) (minimum wage for a tipped employee x 40 hours) - wages paid = additional needed to meet FSLA requirement).

18. John Escobar is paid an hourly rate of $18.50 per hour, and he worked 49 hours this week. His gross pay is:

40 hours x $18.50 = $740.00 regular earnings 9 hours x $27.75 ($18.50 x 1.5) = $249.75 overtime earnings Total gross pay = $989.75 The wages and hours information for five employees of McNeese Enterprises for the week ended July 7 is given below. Employees work a standard 40-hour workweek and are paid time and one-half for all hours over 40 in each workweek. If required, round your answers to two decimal places and use the rounded answers in subsequent computations. Round your final answers to the nearest cent. a. For each employee, compute the regular earnings, overtime rate, overtime earnings, and total gross earnings. b. Compute the total gross earnings for all employees.

19. Alfred Sim is a tipped employee who normally works a 40-hour week and averages over $300 in tips each week. If his employer takes the maximum tip credit against the minimum wage ($5.12 per hours), in a week in which Slim worked 44 hours, the restaurant would pay him:

40 hours x $2.13 = $85.20 4 hours x $5.76 = $23.04 OT Pay ($7.25 x 1.5) - $5.12 = $5.76 OT Rate) Gross Pay = $108.24 Gabrielle Pavon, a waitress at the Hole-in-the-Wall restaurant, worked 41 hours this week and collected over $500 in tips each week. The restaurant uses the full tip credit against the minimum wage and pays Pavon the minimum required for tipped employees. Determine her gross pay from the restaurant: a. Pay for the 40 hours: $85.20 ($2.13 x 40 = $85.20) b. Pay for the overtime hours: $5.76 (7.25 x 1.5) - $5.12 = $5.76)

21. John Escobar's is paid an hourly rate of $18.50 per hour, and he worked 49 hours this week. His pay would be calculated as follows:

49 hours x $18.50 = $906.50 9 hours x $9.25 ($18.50 x 0.5) = $83.25 overtime premium pay Total gross pay = $989.75 Joseph Cavato is paid $10.04 per hour. During the past week, he worked 46 hours, and he is a covered employee who must be paid for overtime. Calculate his pay using the overtime premium approach (above) a. Regular pay (46 hours): $461.84 b. Overtime Premium pay: ($10.04 x 0.5) x 6 = $30.12 c. Gross Pay: $491.96

Catherine is a nonexempt employee and has an agreement with her employer to work for 36 hours in a week. In the previous week, Catherine worked for 45 hours. How many hours of work are considered as overtime hours for the overtime pay calculation?

5 HOURS The nonexempt employee's regular rate of pay is found by dividing the number of hours expected to be worked each week by the weekly salary. The employee is then entitled to be paid at the regular rate of pay for the first 40 hours and at one and one-half times the regular rate of pay for the hours over 40. If an employee's normal workweek is less than 40 hours, as long as an agreement exists between the employee and employer that the salary covers all hours worked up to and including 40 hours, the employer does not have to pay for the "overtime hours" up to the 40 hours.

Nondiscretionary Bonuses

A bonus that is part of employees' wage rates must be allocated to the wages for the period covered by the bonus. Bonuses that are known in advance, or that are set up as inducements to achieve goals, would fit into this category. The employer has only to add the bonus to the wages for the week and divide the sum by the total hours worked to determine the regular rate of pay. One-half of the regular rate would be the premium needed to apply to the overtime hours. Example Facts: Jamil earns $13.50/hour and has earned a safety performance bonus of $85.00. He worked 44 hours this week. His gross pay would be: $13.50 x 44 hours = $594.00 + $85.00 = $679.00 $679.00/44 hours = $15.43 regular pay rate $15.43 x 0.05 = $7.73 OT rate x 4 hours = $30.88 $679.00 + $30.88 = $709.88 total gross pay Example: Garrison Heard earns $12.00 per hour and has earned a production bonus this week of $27.60. Since Heard worked 46 hours this week, his gross pay would be: 46 hours x $12.00 = $552.00 + $27.60 = $579.60 $579.60 / 46 = $12.60 regular $12.60 x 0.5 = $6.30 x 6 hours = $37.80 OT $579.60 + $37.80 = $617.40 gross pay Example: Els Company instituted a perfect attendance program. The bonus ($2,184) is paid in January for the previous year. John Garcia worked 42 hours each week during the year and earned the bonus. The extra overtime pay due Garcia is: $2,184 / 52 = $42/week $42 / 42 hours = $1.00 bonus for each hour $1.00 x 0.5 = $0.50 extra overtime rate $0.50 x 2 overtime hours/week x 52 = $52.00 extra OT

IVR

A telephone-based time system (Interactive Voice Response) allows employees to use a phone, cell phone, or app on a smartphone for time collection. Just as an employee's hand can be identified, so can an employee's voice tract. Employees call a toll-free number, say their pass code and press 1 to clock in, and repeat the procedure to clock out.

2. According to FLSA, an employee is

An individual who who performs services in a covered employment.

CHAPTER 2 HW: According to the FLSA, an employer is:

Any person acting directly or indirectly in the interest of an employer in relation to an employee.

6. The types of exempt white- collar employees are:

Executives, administrators, professionals, highly compensated employees, computer professionals, creative professionals, and outside salespersons.

Summary

Explain the major provisions of the Fair Labor Standard Act (slides 4-26) Define hours worked (slides 27-30) Describe the main types of records used to collect payroll data (slides 31-34) Calculate regular and overtime pay (slides 35-44) Identify distinctive compensation plans (slides 45-55)

Example #2 Calculating Piece Rate Gross Pay

Facts: Roisin is paid to inspect shellfish and is paid $0.08/case. Roisin inspected 6,897 cases in 43.5 hours; she inspected 423 cases in overtime. Calculate gross pay using both methods. Method A ($6,897 cases x $0.08) = $551.76 regular earnings $551.76/43.5 hours = $12.68 hourly rate $12.68 x 0.5 = $6.34 OT premium $551.76 x ($6.34 x 3.5) = $573.95 gross pay Method B (6,474 x $0.08) + [423 x ($0.08)(1.5)] = $568.68 gross pay

24. Rob Hau, a nonexempt employee, works a standard 35-hour week and is paid a salary of $1,080.00. Last week, Hau worked 39 hours and was paid his normal salary of $1,080.00. since he has an agreement with his employer that the salary covers all hours worked with the exception of the work hours over 40.

If he had worked 43 hours, his pay would have been: Regular (up to 40 hours) = $1,080.00 Overtime pay: $1,080 / 35 hours = $30.86 per hours $30.86 x 1.5 = $46.29 OT rate $46.29 x 3 = $138.87 OT pay $1,080 + $138.87 = $1,218.87 gross pay Kenneth Feng is a salaried employee who normally works a 38-hour week and is paid a weekly salary of $722.00. The agreement that he has with his employer states that his salary is to cover all hours worked up to and including 40. This week Feng worked 42 hours Calculate his gross pay: $722.00 / 38 hours = $19.00 regular hourly pay $19.00 x 1.5 = $28.50 OT rate $28.50 x 2 = 57.00 OT Pay $722.00 + 57.00 = $779.00 Gross pay

Profit Sharing Plans

Many businesses have developed profit-sharing plans whereby the employer shares with the employees a portion of the profits of the business. Generally, profit-sharing plans include the following three types: Cash payments based upon the earnings of a specified period. Profits placed in a special fund or account to be drawn upon by employees at some future time. This plan may be in the form of a savings account, a pension fund, or an annuity. Profits distributed to employees in the form of capital stock. The payments made pursuant to a bona fide profit-sharing plan that meets the standards fixed by the secretary of labor's regulations are not deemed wages in determining the employee's regular rate of pay for overtime purposes.

Key Points Summary

Minimum wage ($7.25/hour) but tipped employees ($2.13/hour). Overtime pay at time and one-half for hours over 40. Exemption for white-collar workers. Equal pay for equal work. Child-labor laws (basic minimum is 16 years). Penalties for violations. Principal activities are indispensable to performance of productive work. "Gray areas"—clothes-changing, travel, rest periods, meal periods, training. Preliminary/postliminary activities not counted unless by contract or custom. From time sheets to time cards to computerized record systems. Next generation—biometrics. Fluctuating workweek (salary ÷ total hours worked with an extra half for hours over 40). Commissions—treated as straight-time pay. Nondiscretionary bonuses—add to wages and divide total by hours worked to get regular rate of pay.

Special Incentive Plans

Most wage systems involving special incentives are modifications of the piece-rate system described previously. Under many incentive plans, the company determines a standard for the quantity that an average worker can produce in a certain period of time. Workers failing to reach the standard earn a lower piece rate, while those who produce more than the standard receive a higher rate. With incentive plans, the computation of the payroll is usually more complicated than under the time-rate or piece-rate systems. Records of time worked as well as the production of each employee must be available in computing wages under most incentive plans. Example of incentive plans $0.18/unit for units inspected up to 2,000 units/week $0.24/unit for units inspected between 2,001-3,500 units/week $0.36/unit for units inspected over 3,500 units/week http://www.incentivelogic.com There are companies that specialize in setting up different forms of employee incentive plans. Chu Wang, Inc., pays its blade polishers according to the following piece-rate incentive plan:

8. To be classified as a highly compensated employee, he or she must

Perform nonmanual work. Regularly perform one of exempt duties of an executive, administrator, or professional employee. Earn $107,432 or more.

17. Joanne French works a 40-hour week at $12.40 an hour with overtime hours paid at 1 1/2 times the regular rate.

Regular weekly earnings are: $12.40 x 40 hours = $496.00 The overtime rate is: $12.40 x 1.5 = $18.60 OT rate If French works 4 hours overtime, additional earnings for the 4 hours are $18.60 x 4 = $74.40 French's weekly gross earnings are: $496.00 + $74.40 = $570.40 If paid only for time actually worked and she works only 36 hours during a week, French earns: $12.40 x 36 hours = $446.40 The hours worked and the hourly wage rate for five employees of Ka Company for the week ended September 9 follow. a. For each employee, compute the gross earnings b. Compute the total gross earnings for all employees

23. Paul Galmes produced 3,073 pieces in a 44-hour workweek and is paid 18 3/4 cents for every unit produced.

Step 1 Compute the total regular weekly earnings: 3,073 x $0.1875 = $576.19 regular weekly earnings Step 2 Compute the regular hourly rate of pay: 576.19/44 hours = $13.10 regular hourly rate pay Step 3 Compute the overtime rate of pay and compute the overtime earnings. The regular earnings include the pay for the overtime hours at the regular rate. This is for the extra one-half time. 0.5 x $13.10 = $6.55 overtime rate of pay 4 hours x $6.55 = $26.20 overtime earnings Step 4 Compute the total regular and overtime earnings for the week: $576.19 + $26.20 = $602.39 piecework and overtime earnings. During the first week in November, Erin Mills worked 43.00 hours and produced 1,314 units under a piece-rate system. The regular piece rate is $0.34 a unit. Mills is paid overtime according to the FLSA ruling for overtime work under a piece-rate system. Compute following: a. The piecework earnings: $446.76 (1,314 units x $0.34) b. The regular hourly rate: $10.39 ($446.76/43) c. The overtime hourly rate: $5.20 ($10.39 x 0.5) d. The overtime earnings: $15.60 ($5.20 x 3 hours) e. The total earnings: $462.36 ($446.76 + $15.60)

26. Al Lee earns $5,200 per month and works a standard 40-hour week. During one week, Lee earned 6 hours of overtime.

Step 1 Convert the monthly salary rate to a weekly rate by first annualizing the monthly salary. Then divide the annual salary by 52 weeks. $5,200 x 12 = $62,400 annual salary $62,400/52 = $1,200 weekly salary Step 2 Divide the weekly rate by the standard number of hours in the workweek. $1,200 / 40 hours = $30.00 hourly rate Step 3 Compute the overtime rate by multiplying the hourly rate by 1.5 $30.00 x 1.5 = $45.00 overtime rate Step 4 Compute the gross pay for the week by adding the overtime earnings to the regular weekly earnings $1,200 + (6 x $45.00) $270.00 = $1,470.00 Gross pay Cal DiMangino earns $2,704 each month and works 40 hours each week. $2,704.00 / 2 = $1,352 semimonthly $2,704 x 12 = $32,448 Annual $32,448.00 / 52 = $624 week $624.00 / 40 = $15.60 hourly rate $15.60 x 1.5 = $23.40 OT rate a. The hourly rate = $15.60 b. The overtime rate at time and one-half = $23.40

22. Kate Kline receives an annual $35,000 base salary for working a certain territory. A sales quota of $800,000 has been set for that territory for the current year. Kline will receive a 6 percent commission on all sales in excess of $800,000. For the current year, the sales in the territory are $1,030,000.

The bonus paid Kline would be: ($1,030,000 - $800,000) x 0.06 = $13,800 or 6% of 230,000 Kline's total earnings for the year would be: $35,000 + $13,800 = $48,800 Wendy Epstein, a sales representative, earns an annual salary of $35,300 and receives a commission on that portion of her annual sales that exceeds $150,000. The commission is 7.5% on all sales up to 50,000 above the quota ($150,000-$200,000). Beyond that amount, she receives a commission of 9.0% ($200,000 +) Her total sales for the past year were $250,000 a. The regular annual salary: $35,300 b. The commissions: ($50,000 x 0.075) + ($50,000 x 0.09) = $8,250.00 c. The total annual earnings: $43,550.00

Commissions

The entire remuneration, or at least part of the remuneration, of certain employees may be on a commission basis. A commission is a stated percentage of revenue paid to an employee who transacts a piece of business or performs a service. Thus, a salesperson working in a certain territory may have a fixed salary each year plus a bonus for sales in excess of a certain amount. Example Facts: Sam sold $40,000 of product. His quota is $31,500. He gets 2% in excess of quota and his annual base salary is $30,000. If he gets paid biweekly, calculate his total gross pay. $30,000/26 = $1,153.85 base earnings ($40,000-$31,500) x 0.02 = $170 commission $1,153.85 + $170.00 = $1,323.85 gross pay Example: Kate Kline receives an annual $35,000 base salary for working a certain territory. A sales quota of $800,000 has been set for that territory for the current year. Kline will receive a 6 percent commission on all sales in excess of $800,000. For the current year, the sales in the territory are $1,030,000. The bonus paid Kline would be: $13,800 (6% of $230,000) Kline's total earnings for the year would be: $48,800 ($35,000 + $13,800) There are numerous variations of the commission method of remuneration. Some businesses offer special premiums or bonuses for selling certain merchandise. For example, to help move merchandise in a ready-to-wear department, a department store will frequently pay a premium or a bonus to the salesperson who sells specific items of merchandise. Commissions are considered to be payments for hours worked and must be included in determining the regular hourly rate. This applies regardless of whether the commission is the sole source of the employee's compensation or is paid in addition to a salary or hourly rate. It does not matter whether the commission earnings are computed daily, weekly, monthly, or at some other interval. However, in the case of outside salespeople who are exempt from the FLSA, commissions paid to them do not have to meet the minimum wage criteria. Commissions are treated as straight-time pay. To calculate overtime, the weekly commission is divided by the total hours worked. This is the employee's regular rate of pay. The overtime pay would be one-half the regular rate of pay for all hours worked over 40 in the workweek.

10. If an employee must travel a substantial distance from their usual work location to perform work, the travel to and from that site counts as:

Time worked

15. Paying less than the minimum wage

Under certain conditions, wages lower than the minimum wage may be paid to some employees. 1. Tipped employees. 2. A training wage allows employers to pay $4.25 per hour to newly hired employees under 20 years of age (opportunity wage). This only applies to the first 90 consecutive calendar days of employment. 3. Retail or service establishments and farms may employ full-time students at 85 percent of the minimum wage ($6.1625 per hour, government rounds to $6.17 in favor of the employee). 4. Institutions of higher education may employ their own full-time students at 85 percent of the minimum wage. 5. Student-learners may be employed at 75 percent of the minimum wage if they are participating in a bona fide vocational training program conducted by an accredited school ($5.44 per hour). 6. Firms whose principal business is the delivery of letters and messages may employ messengers at not less than 95 percent of the minimum wage. 7. Persons whose earnings capacity is impaired by age, physical or mental deficiency, or injury may be employed at special minimum wage rates.

Self-Assessment

What are the circumstances when the workers' wages can be lower than the minimum wage paid to some employees? What are the situations when the wages can be more than the minimum wage? What type of workers are exempt from some, or all, of the FLSA requirements, such as minimum wages, equal pay, and overtime pay? What activities are considered as principal activities of employees?

9. In order not to interfere with the schooling and well-being of minors between the ages of 14 and 16, employers of these minors must satisfy which of these conditions?

Work must be performed between 7 A.M. and 7 P.M. (9 P.M. in summer). All work must be performed outside school hours. There is a maximum 3-hour day and 18-hour workweek when school is in session (8 hours and 40 hours, respectively, when not in session).

12. To calculate the overtime hourly rate for employees who are paid biweekly:

divide by 2 to arrive at the weekly salary, then divide the weekly salary by the regular number of hours worked to obtain the hourly rate. Multiply this rate by one and one-half to obtain the overtime rate.

Tips

A tip (to ensure promptness) is a gift or gratuity given by a customer in recognition of some service performed. A tipped employee is one who engages in an occupation in which tips of more than $30 a month are customarily and regularly received. An employer may consider, within prescribed limits, the tips received by a tipped employee as part of the employee's wages. In 1996, the Small Business Job Protection Act froze the minimum cash wage required for tipped employees at $2.13 per hour. Tips received by the employee are credited toward the remainder ($5.12) of the total minimum wage ($7.25 - $2.13). The employee is required to report tips to the employer each month (if more than $20.00). If tips received do not amount to at least $5.12 per hour, the employer must increase the hourly rate of pay so that the hourly wage plus the equivalent hourly rate of tips received equal, at a minimum, $7.25 per hour. In 2022, the minimum wage for tipped employees of federal contractors was set at $10.50 per hour. Through a combination of tips and wages, these tipped employees must earn at least $15.00 per hour. The Department of Labor has stated that if tipped employees routinely spend more than 20 percent of their time on general preparation or maintenance work, the tip credit may not be claimed for the time spent performing those tasks. In order to take the tip credit, employers must notify the affected employees of the minimum wage requirements and of their intention to take the tip credit. This information can be provided orally to the employees.

Self-Study Quiz 2-2

Genna Harrison, a waitress, earns $85.20 a week for a 40-hour workweek. During one week, Harrison received tips of $90. What hourly rate is being paid to Harrison? $ 2.13 How much must the employer pay Harrison in addition to her $85.20 weekly wage? $114.80 $ 290.00 ($7.25 × 40 hours) - $85.20 - $90.00 = $114.80

Common-law relationship

A common-law relationship of employer and employee exists when the employer has the right to control both what work will be done and how it will be done. How the relationship is labeled is immaterial; it is the substance of the relationship that governs the worker's status. To determine if a worker may be classified as an employee and if the employer has the right to control, the U.S. Department of Labor has reinstituted an old six-factor economic reality test: Extent to which the services are an integral part of the employer's business. Permanency of the relationship between employer and worker. Investment in facilities and equipment by the worker. Employer's degree of control over the worker. Worker's opportunity for profit and loss. Amount of initiative, judgment, or foresight required for the worker's success.

Compensatory Time off

A state, a political subdivision of a state, or an interstate governmental agency may grant employees (not covered by a collective bargaining agreement) compensatory time off in lieu of overtime compensation. Employees working in public safety, emergency response, or seasonal activities may accumulate compensatory time off up to 480 hours. (The 480-hour limit represents 320 hours of overtime actually worked at the one and one-half overtime rate.) Employees may "bank" their hours and use them later as time off at time and one-half during the course of their employment. Employees whose work does not include the preceding activities may bank 240 hours for compensatory time off. Upon reaching the 480- or 240-hour limit, an employee must receive either cash for additional hours of overtime worked or use some compensatory time before receiving further overtime compensation in the form of compensatory time off. Note that not all 480 or 240 hours have to be accrued before compensatory time off may be used. The FLSA also provides for the payment of cash for unused comp time when the employee terminates employment.

Time Sheets

A time sheet provides the information required by law and the data used to compute the payroll. Many small businesses that must keep a record of time worked by each employee require each person to submit and sign a time sheet, indicating the times of arrival and departure from work. These time reports are approved by the appropriate supervisor or department head at the end of the pay period. They are then forwarded to the Payroll Department for entry into the payroll system. Time sheets offer a simple method of accumulating employees' working times.

Exemption Status of Workers under FLSA

Agricultural employees. Full Overtime Exemption Agricultural workers who are members of the employer's immediate family. Minimum Wage Exemption, Equal-Pay Exemption, Full Overtime Exemption Air carrier employees if the carrier is subject to Title II of the Railway Labor Act. Full Overtime Exemption Amusement or recreational establishment employees, provided the business has seasonal peaks. Minimum Wage Exemption, Equal-Pay Exemption, Full Overtime Exemption Announcers, news editors, and chief engineers of radio or television stations in small communities. Full Overtime Exemption Baby sitters (casual) and companions to ill or aged persons unable to care for themselves. Minimum Wage Exemption, Equal-Pay Exemption, Full Overtime Exemption Drivers and drivers' helpers who make local deliveries and are paid on a trip-rate or similar basis following a plan approved by the government. Full Overtime Exemption Executive, administrative, and professional employees, including teachers and academic administrative personnel in schools. Minimum Wage Exemption, Full Overtime Exemption Fruit and vegetable employees who are engaged in the local transportation of these items or of workers employed or to be employed in the harvesting of fruits or vegetables. Full Overtime Exemption Household domestic service employees who reside in the household. Full Overtime Exemption Motion picture theater employees. Full Overtime Exemption Motor carrier employees if the carrier is subject to regulation by the secretary of transportation. Full Overtime Exemption Newspaper employees if the newspaper is published on a weekly, semiweekly, or daily basis and if the circulation is less than 4,000 copies, with the major circulation in the county of publication or contiguous counties. Minimum Wage Exemption, Equal-Pay Exemption, Full Overtime Exemption Railroad, express company, and water carrier employees if the companies are subject to Part I of the Interstate Commerce Act. Full Overtime Exemption Salespersons for automobile, truck, or farm implement dealers; parts stock clerks or mechanics; salespersons for boat, trailer, or aircraft dealers. Full Overtime Exemption Taxicab drivers. Full Overtime Exemption

Overtime Example 2-4

Alfred Sim is a tipped employee who normally works a 40-hour week and averages over $300 in tips each week. If his employer takes the maximum tip credit against the minimum wage ($5.12 per hour), in a week in which Sim worked 44 hours, the restaurant would pay him: 40 hours x $2.13 = $85.20 4 hours x $5.76 ($7.25 x 1.5 - $5.12) = $23.04 Gross pay = $108.24

State Laws

All states except for Alabama, Louisiana, Mississippi, South Carolina, and Tennessee have minimum wage and overtime rules that apply both to employees covered by the FLSA and to those not covered. Some states have created multiple rates based on region, employer size, and for urban versus nonurban counties. In Oregon, it is $12.00 per hour in nonurban counties, $12.75 in standard counties, and $14.00 per hour in Portland's service district. The FLSA requires payment of the higher wage standard if it is more than the federal $7.25 per hour.

BELO Plan

An alternative salary method to compensate employees working fluctuating schedules is the BELO plan. It is more restrictive than the fluctuating workweek method, and the following conditions must be met: Irregular work hours are the nature of the job. There are large variations in weekly hours above and below 40 hours. Rate of pay cannot include additional forms of compensation—bonuses, commissions, etc. Guaranteed compensation cannot be for more than 60 hours—beyond 60 hours requires one and one-half times the regular rate. Agreement must exist between the employer and the employee. Basically, the salary is figured by calculating the wages for the maximum number of hours at straight time and then adding 50 percent (one-half) of the regular rate for the overtime hours. Example: The agreement between John Kalas and his employer provides for a pay rate of $14 per hour with a maximum of 48 hours per week. 48 hours x $14 = $672.00 8 hours x 0.5 x $14 = $56.00 John's weekly salary = $728.00 No matter how many hours John works each week (above and below 40), his gross pay would be $728.00. However, if John works beyond the agreed-upon maximum of 48 hours, he must be paid at one and one-half times his regular rate of pay for the hours over 48. Compute the hourly and overtime rates for a standard 40-hour workweek for the following amounts: Hourly Rate Overtime Rate $525.00 weekly $13.13, $19.70 Hourly Rate Overtime Rate $892.00 biweekly $11.15, $16.73 Hourly Rate Overtime Rate $1,450.00 semimonthly $16.73, $25.10 Hourly Rate Overtime Rate $2,600.00 monthly $15.00, $22.50

Exceptions to Overtime Hours and Overtime Pay Provisions

An exception to overtime hours and overtime pay applies to hospital employees who care for residents who are sick, aged, or mentally ill. Hospitals may enter into an agreement with their employees under which a 14-day period, rather than a workweek, becomes the basis for computing overtime pay. Employees entering such an agreement must receive overtime pay at not less than one and one-half times their regular hourly rate for hours worked in excess of 8 hours in any workday or in excess of 80 hours in a 14-day period, whichever is the greater number of overtime hours (referred to as the 8 and 80 system). Although employers have the option of using the normal workweek or the 14-day period, they cannot change from one method to the other arbitrarily. Donna Maloney, a lab technician, agreed that a 14-day period would be used to figure her overtime pay. Maloney works 12 hours in one day during the period and 8 hours in each of the 9 other days worked during the period, a total of 84 hours. Maloney is entitled to 80 hours of straight-time pay and 4 hours of overtime pay for the 14-day period. If Maloney worked only 7 hours in each of the 9 other days during the period, or a total of 75 hours, she would be entitled to 71 hours of straight-time pay and 4 hours of overtime pay for the 14-day period. Employees in retail or service industries are exempt from the overtime provisions as long as their regular weekly rate of pay, including commissions, is at least one and one-half times the federal minimum wage rate ($10.88) and more than half of their pay over a monthly period comes from commissions. The overtime exemption is lost for any week in which the pay drops below $10.88 per hour. Minimum wage legislation also provides an exception for employees receiving remedial education. Under this law, employees who receive remedial education offered by their employers are permitted to work up to 10 hours overtime each week without receiving overtime compensation. The remedial training, which does not include training for a specific job, must be designed to provide reading and other basic skills at an eighth-grade level or below.

Overtime Earnings for Pieceworkers—Method B

Another method of computing overtime payment for pieceworkers complies with the requirements of the FLSA. Before doing the work, piece-rate employees may agree with their employer, in advance of the work being done, to be paid at a rate not less than one and one-half times the piece rate for each piece produced during the overtime hours. No additional overtime pay will be due to the employees. Example: Assume that in the preceding example, Galmes earned overtime at a piece rate of one and one-half times the regular rate for all pieces produced during overtime hours. Of the total 3,073 pieces produced, 272 were produced in the 4 overtime hours. Galmes' total piecework and overtime earnings are as follows: 2,801 pieces x $0.1875 = $525.19 piecework earnings 272 pieces x $0.2812 ($0.1875 x 1.5) = $76.51 OT earnings $525.19 + $76.51 = $601.70 piecework and OT earnings Example: Bruce Eaton is paid 10 cents per unit under the piece-rate system. During one week, Eaton worked 46 hours and produced 5,520 units. Compute the following: The piecework earnings $552.00 The regular hourly rate $12.00 ($552.00 ÷ 46) The overtime hourly rate $6.00 ($12.00 × 0.50) The overtime earnings $36.00 ($6.00 × 6) The total earnings $588.00

Clothes-Changing Time and Wash-Up

Because of the nature of their work, some employees change clothes or wash on the employer's premises. Statutes or ordinances may require clothes changing or washing. Employees who spend time changing clothes or washing on the employer's premises regard this time as part of their principal activities. However, even where the nature of the job or the law requires clothes changing or wash-up, it may be excluded from time worked either expressly or by custom and practice under a collective bargaining contract. The U.S. Supreme Court has ruled that time spent donning and doffing protective gear qualified as "clothes changing" under a collective bargaining agreement between the employer and the unionized workforce and was noncompensable. This ruling affects all employers of a unionized workforce that have uniform or other dress requirements. A District of Columbia federal court ruled that time spent donning and doffing protective gear and firearms by police officers was compensable time unless the time was too short to monitor. However, changing into uniforms was not considered to be an integral nor indispensable part of their policing duties. Since the officers could change clothes at home, this time is not considered "time worked."

Meal Periods

Bona fide meal periods (not including coffee breaks or snack times) during which the employee is completely relieved from duty are not considered working time. Lunch periods during which the employee must perform some duties while eating are not bona fide meal periods. The general rule sets a bona fide meal period at 30 minutes or longer. In cases where the employer and employee agree that it is sufficient, a 15-minute lunch period can be considered a bona fide meal period. However, the lunchroom facilities must be readily accessible. Over 40 states have laws covering meals and rest periods. California requires a 30-minute break (unpaid) after five hours and a 10-minute rest period per four hours of work. If nonexempt employees do not get this break, they must be given an additional hour of pay. Virginia Gomez, an office worker, must eat at her desk and operate the switchboard at lunch time. Gomez must be paid for the lunch period.

Domestics

Domestic workers also must be paid the minimum wage if: They perform services in one or more homes for a total of eight hours or more in any workweek, or if They earn wages of at least $2,300 from an employer in a calendar year. Domestic service consists of services of a household nature performed in or about a private home of the person who employs the domestic. Some typical domestics include cooks, butlers, maids, caretakers, gardeners, and chauffeurs. The term also includes a baby sitter employed on other than a casual basis, such as a person who sits for a child five days a week. If the domestics do not live in the household, they must be paid overtime compensation as well as the minimum wage. However, live-in domestics do not have to be paid overtime. A casual baby sitter (one employed on an irregular or intermittent basis) or a companion for the aged or infirmed is not covered. Direct care workers provide essential home care assistance to the elderly and people with injuries, illnesses, or disabilities. These workers if employed directly by a family or individual are not covered unless they are performing medically related duties or are providing more than a limited amount of care in addition to fellowship and protection. Direct care workers, employed by third-party employers, started to receive minimum wage and overtime coverage in 2015.

Methods of Computing Wages and Salaries

Employees are usually paid for time worked at a time rate, such as hourly, weekly, biweekly, semimonthly, or monthly. The employee may also be paid at a piece rate, incentive rate, commission basis, or a combination of these rates. Even though most payroll systems automatically calculate the payroll amounts, it is important to be able to understand how the amounts are figured.

Certificate of Age

Employers cannot be charged with having violated the child-labor restrictions of the law if they have on file an officially executed certificate of age which shows that the minor has reached the stipulated minimum age. In most states, a state employment or age certificate, issued by the Federal Wage and Hour Division or by a state agency, serves as proof of age. In some states, a state or federal certificate of age, a state employment certificate, or a work permit may not be available. In such cases, the employer may rely on any one of the following documents as evidence of age for minor employees: Birth certificate (or attested transcript thereof) or a signed statement of the recorded date and place of birth issued by a registrar of vital statistics or other officer charged with the duty of recording births. 2. Record of baptism (or attested transcript thereof) showing the date of birth of the minor. 3. Statement on the census records of the Bureau of Indian Affairs and signed by an administrative representative thereof showing the name, date, and place of the minor's birth. The employer should maintain a copy of the document or indicate in the payroll records which document verified the minor's age.

Tardiness

Employers may handle tardiness in many ways. Frequently, when an employee is late or leaves early, the supervisor must OK the timecard. Some companies require the employee to sign a special slip indicating the reason for being late or leaving early. Some companies keep time according to the decimal system, whereby each hour is divided into units of tens (6 minutes times 10 periods in each hour). An employee who is late one through 6 minutes is penalized or "docked" one-tenth of an hour. One who is 7 through 12 minutes late is "docked" one-fifth of an hour, etc.

Salaried with Fluctuating Workweek

Employers may pay employees who work fluctuating schedules a fixed salary, regardless of the number of hours worked. Both parties must agree, prior to the workweek, that this pay calculation method will be used, and the salary must cover at least the minimum wage rate for the total hours worked each workweek. In such cases, overtime pay is found by dividing the normal salary by the total hours worked. An extra half rate is then paid for all hours worked over 40. Some states prohibit or limit the use of this method of payment. Example: Matt Leonard earns $739.20 a week with fluctuating workweek hours. If he worked 48 hours in one week, his gross pay would be calculated as follows: $739.20 / 48 hours = $15.40 regular rate $15.40 x 0.5 = $7.70 extra half pay rate 8 hours OT x $7.70 = $61.60 extra pay $739.20 + $61.60 = $800.80 weekly gross pay This calculation also applies to employees who receive a day rate compensation. The total pay for the week would be divided by the hours worked. The extra half rate would then be applied to the hours worked over 40 to determine the overtime pay. An alternative method of calculating the overtime is to use the fixed salary divided by 40 hours to determine the regular rate of pay. This way, the overtime premium will be the same no matter how many hours are worked. This method eliminates the need to recalculate the regular rate of pay each week as the number of hours worked changes. Example: $739.20 / 40 hours = $18.48 regular rate $18.48 x 0.5 = $9.24 extra half pay 8 hours OT x 9.24 = $73.92 extra pay $739.20 + $73.92 = $813.12 weekly gross As a true "fixed salary arrangement," employers cannot make deductions from the salary for absences occasioned by the employee. The exception would apply to disciplinary deductions.

There are two bases of coverage under FLSA: Enterprise

Enterprise coverage includes all employees if Two or more are working in interstate commerce or produce goods for interstate commerce. Interstate commerce refers to the trade, transportation, or communication among several states or between a state and any place outside that state. The law also covers employees if they handle, sell, or otherwise work on goods or materials that have been moved in or produced for interstate commerce, and The business has annual gross sales of at least $500,000. Coverage extends, without regard to annual sales volume, to those who operate: .A hospital. A nursing home. An institution for the mentally ill. A school for mentally or physically handicapped or gifted children. A preschool, elementary, or secondary school. An institution of higher education. A public agency. The enterprise coverage under the FLSA does not apply to family establishments, often referred to as "mom and pop stores." Thus, if the only regular employees of an establishment include the owner, parent, spouse, child, or other immediate family members, the establishment is exempt from FLSA coverage.

Overtime Earnings for Pieceworkers—Method A

For overtime work, the pieceworker is entitled to be paid, in addition to piecework earnings for the entire period, a sum equal to one-half the regular hourly rate of pay multiplied by the number of hours worked in excess of 40 in the week. Example: Paul Galmes produced 3,073 pieces in a 44-hour workweek and is paid 18 3/4 cents for every unit produced. 3,073 x $0.1875 = $576.19 weekly $576.19 /44 = $13.10 regular $13.10 x 0.5 = $6.55 OT $6.55 x 4 hours = $26.20 OT pay $576.18 + $26.20 = $602.39 Piecework and OT earnings

Indications of Exempt Status

Executive Primary duty—managing Supervises two or more employees Authority to hire, fire, promote Administrative Primary duty—performs office work Regularly uses discretion and independent judgment Professional Work requires advanced knowledge (science or learning) Knowledge acquired by prolonged course of instruction Business Owner Owns at least 20% of equity Actively manages business operations Highly Compensated Earns $107,432 or more Performs nonmanual work Regularly performs one of the exempt duties of an executive, professional, or administrative employee Computer Professionals Salary of at least $684/week or $27.63/hour Duties consist of system analysis techniques, design of computer systems or programs Creative Professional Requires invention, imagination, originality, or talent in an artistic or a creative endeavor Outside Salespeople Primary duty—makes sales or obtains orders for services or use of facilities Regularly away from the employer's place of business No salary test A number of states are evaluating changes to their overtime rules that will exceed the federal salary requirements. California has set its salary level for workers at large employers to $49,920 (set to change to $62,400 in 2023).

Exemptions from FLSA Requirements

Exempt employees (see Figure 2.1) are those workers exempt from some, or all, of the FLSA requirements, such as minimum wages, equal pay, and overtime pay.

Chapter Objectives

Explain the major provisions of the Fair Labor Standards Act. Define Hours Worked Describe the main types of records used to collect payroll data. Calculate regular and overtime pay Identify distinctive compensation plans This chapter examines the major provisions of the Fair Labor Standards Act, how to determine hours worked by employees, commonly used methods to record time worked, and the major methods of computing salaries and wages. Tracing its origin back to the 1930s, the Fair Labor Standards Act is the most encompassing of all the labor laws. However, it is also the one most violated.

Salaried Nonexempt Employees Example

FACTS: Salary quoted to Felicia, a nonexempt employee, is $1,600/month for 35 hours work week - paid semimonthly. OT is calculated as regularly hourly pay between 35-40 hours/week; 1.5 after 40 hours. Of 16 hours of OT in one pay period, 6 hours are over 40 hours weekly. $1,600 x 12 = $19,200 annual gross $1,9200/24 = $800 semimonthly $19,200/52 = $369.23 weekly rate $369.23/35 = $10.55 regular rate $10.55 x 1.5 = $15.83 OT rate $800 + ($10.55 x 10) + ($15.83 x 6) = $1000.48 gross

Discussion Activity: Help management of the company by explaining the rules laid out for overtime pay in FLSA.

FLSA requires overtime pay for all hours worked in excess of 40 workweeks. FLSA requires no overtime pay for daily hours worked in excess of any given number or for work on Saturdays, Sundays, holidays, or other special days. The law requires overtime pay to be one and one-half times the employee's regular hourly rate of pay, which must not be less than the statutory minimum Payment for the overtime worked must generally be made on the regular payday for the time period in which the overtime work took place. An exception to overtime hours and overtime pay applies to hospital employees. Employees in retail or service industries are exempt from the overtime provisions as long as their regular weekly rate of pay, including commissions, is at least one and one-half times the federal minimum wage rate and more than half of their pay over a monthly period comes from commissions.

Example #1 Calculating Piece Rate Gross Pay

Facts: 4,812 units inspected in a 47.25 hours week (600 of those units produced in extra hours). Mustafa is paid $0.12 per unit. Calculate gross pay using both piece rate methods. Method A: 4,812 x $0.12 = $577.44 regular earnings $577.44/47.25 hours = $12.22 hourly rate $12.22 x .05 = $6.11 OT premium $577.44 + ($6.11 x 7.25 hrs.) = $621.74 gross pay Method B: (4,212 x $0.12) + [600 x ($0.12)(1.5)] = $613.44 gross pay

Example-- Calculating gross pay at three different pay ratesx

Facts: Oshiko worked for Tinto Inc., in two capacities. Job "A" paid $14.50/hour (he worked 37 hours at this) and Job "B" paid $11.00/hour (6 hours). 3 hours overtime. Method (1) Regular pay ($14.50 x 37 hrs.) + ($11.00 x 6 hrs.) = $602.50 OT premium on higher rate ($14.50 x 0.5) x 3 hours = $21.75 Total Pay = $602.50 + $21.75 = $624.25 Method (2) Start with same regular pay ($602.50) divided by total hours: $602.50/43 = $14.01 regular rate and OT premium = $14.01 x 0.5 = $7.01 $602.50 + ($7.01 x 3) = $623.53 Method (3) Start with same regular pay ($602.50) and add OT premium at Job B rate (602.50 + ($11.00 x 0.5 x 3 hours)) = $619.00

Example #2 Calculating gross paycheck

Facts: Salary quoted to Eve, a nonexempt employee, is $2000/month. She's paid semimonthly and worked 4 hours of OT in one pay period. $2,000 x 12 = $24,000 $24,000 / 24 = $1,000 semimonthly gross $24,000/52 = $461.54 weekly rate $461.54/40 = $11.54 regular hourly rate $11.54 x 1.5 = $17.31 OT rate $1,000 + ($17.31 x 4) = $1,069.24 gross

Example 1: Calculating Gross Paycheck

Facts: Salary quoted to Faron, a nonexempt employee, is $1,500/month. He's paid weekly and had 43 hours in one pay period. Calculate his gross pay. $1,500 x 12 = $18,000 annual $18,000/52 = $346.15 weekly gross. $346.15/40 = $8.65 regular rate $8.65 x $1.5 = $12.98 OT rate $346.15 + ($12.98 x 3) = $385.09 gross

Providing False Data

Fines up to $10,000 and imprisonment up to 10 years (Federal False Information Act).

Repeated Violations

Fines up to $10,000 per violation resulting from a "continuous course of conduct"; second offenders can be imprisoned for up to six months.

Training Sessions

Generally, working time includes the time spent by employees in attending lectures and meetings for training purposes. The working time spent by postal clerks in learning mail distribution practices and the operation of letter-sorting machines counts as compensable time because it is (a) controlled and required by the employer, (b) for the primary benefit of the employer, and (c) an integral and indispensable part of the employees' principal work activities. However, time spent in training sessions need not be counted as working time if ALL the following conditions are met: Attendance by the employee is voluntary. The employee does not produce any goods or perform any other productive work during the meeting or lecture. The meeting or lecture takes place outside regular working hours. The meeting or lecture is not directly related to the employee's work.

Waiting Time

If an employee is "engaged to wait," this is work time. For example, workers required to be at a car wash at a scheduled time while waiting for cars to be washed are considered to be working. On the other hand, if an employee is "waiting to be engaged," this is not work time. An employee completely relieved from duty until a certain hour is not working during the time spent waiting for that hour.

Converting Biweekly Wage Rates to Hourly Rates

If paying employees biweekly, divide the biweekly earnings by 2 to arrive at the weekly rate, and divide the weekly rate by the standard number of hours. Example: Glenda Rome earns $980 biweekly and works a standard 40-hour workweek. Compute Rome's hourly and overtime rates as follows: $980.00 / 2 = $490.00 weekly $490.00 / 40 = $12.25 hour $12.25 x 1.5 = $18.38 overtime rate

Sleep Time

If required to be on duty for less than 24 hours, the employee is considered to be working even though the employee is sleeping or engaging in other personal activities. If over 24 hours, an agreement to exclude a sleeping period of not more than 8 hours from time worked is binding. Adequate sleeping facilities must be provided, and the employee must be permitted at least 5 hours of uninterrupted sleep.

Converting Monthly Salary Rates to Hourly Rates

If workers paid on a monthly basis earn overtime pay for work beyond a 40-hour week, compute the hourly overtime rate by converting the monthly salary rate to an hourly rate. To do this correctly, you must extend the monthly salary to an annual figure, divide by 52, and then divide by the regular number of hours worked each week. Example: Al Lee earns $5,200 per month and works a standard 40-hour week. During one week, Lee earned 6 hours of overtime. $5,200 x 12 months = $62,400 annual $62,400 annual / 52 weeks = $1,200 weekly $1,200 weekly / 40 hours = $30.00 hourly $30.00 x 1.5 = $45.00 OT rate $1,200 + $270.00 ($45.00 x 6) = $1,470

Calculating Overtime Pay 1

In calculating the gross pay of an employee who worked overtime, one of two methods can be used, both of which will result in the same total gross pay. The most common method is to calculate the gross pay for the 40 hours and then calculate the overtime pay by multiplying the number of hours over 40 by a pay rate of one and one-half times the employee's regular rate of pay. Example: Joanne French works a 40-hour week at $12.40 an hour with overtime hours paid at 1 1/2 times the regular rate. Regular weekly earnings are $496.00 (40 × $12.40) The overtime rate is $18.60 ($12.40 × 1.5) If French works 4 hours overtime, additional earnings for the 4 hours are $74.40 (4 × $18.60) French's weekly gross earnings are $570.40 ($496.00 + $74.40) If paid only for time actually worked and she works only 36 hours during a week, French earns $446.40 (36 × $12.40) Example: John Escobar is paid an hourly rate of $18.50 per hour, and he worked 49 hours this week. His gross pay is: 40 hours x $18.50 = $740.00 regular 9 hours x $27.75 ($18.50 x 1.5) = $249.75 overtime earnings Total gross pay = $989.75

DIFFERENT RATES FOR DIFFERENT JOBS

In cases where an employee works at different rates for different jobs during the same workweek, the employers can, at their option, calculate the overtime in one of three ways. (1) One could pay at the higher rate for the overtime hours. (2) One could calculate it by taking the total earnings for both jobs, dividing by the total hours worked, then taking one-half of this rate, and multiplying by the overtime hours. (3) One could use an overtime rate based on the rate for the job performed after the 40th hour (the employee must have agreed to this in advance). Example: Steve Timko worked at two different pay rates during the past week. His main job paid $17.30/hour, while the extra job rate was $20.50. He worked the first 36 hours at Job "A" and 8 hours at Job "B." Method 1 Regular earnings = $622.80 (36 x $17.30) Job B = $164.00 (8 x $20.50) Overtime rate (higher rate) = $10.25 (0.5 x $20.50) Overtime pay = $41.00 (4 x $10.25) Total Pay = $827.80 ($622.80 + $164.00 + $41.00) Method 2 Job A = Regular earnings = $622.80 (36 x $17.30) Job B = $164.00 (8 x $20.50) Overtime rate (1/2) = $8.94 ($786.80/44 x 0.5) Extra overtime pay = $35.76 (4 x $8.94) Total pay = $822.56 ($622.80 + $164.00 + $35.76) Method 3 Job A = Regular earnings = $622.80 (36 x $17.30) Job B = $164.00 (8 x $20.50) Overtime pay (Job B) = Overtime pay = $41.00 (4 x $10.25) Total pay = Total Pay = $827.80 ($622.80 + $164.00 + $41.00)

Salaried Nonexempt Employees

In order to cut administrative costs, salaries can be paid to nonexempt employees; however, these employees are still subject to the FLSA's overtime rules. The employee's regular rate of pay is found by dividing the number of hours expected to be worked each week into the weekly salary. The employee is then entitled to be paid at the regular rate of pay for the first 40 hours and at one and one-half times the regular rate of pay for the hours over 40. Example: Nancy Seigle earns a monthly salary of $3,100 for a 35-hour week. For overtime she receives her regular hourly rate of pay for the hours up to 40 and time and one-half beyond 40 hours in any week. For this semimonthly pay period, Seigle worked 8 hours overtime—only 1 hour was beyond 40 in any week, and she was paid $1,723.74 based on: $3,100 x 12 = $37,200 annual $37,200 / 24 = $1,550 semimonthly $37,200 / 52 = $715.38 weekly $715.38 / 35 hours = $20.44 hourly $20.44 x 1.5 = $30.66 OT rate $1,550.00 (semimonthly) + (7 x 20.44) + (1 x $30.66) = $1,723.74 If an employee's normal workweek is less than 40 hours, as long as an agreement exists between the employee and the employer that the salary covers all hours worked up to and including 40 hours, the employer does not have to pay for the "overtime hours" up to the 40 hours. Example: Rob Hau, a nonexempt employee, works a standard 35-hour week and is paid a salary of $1,080.00. Last week, Hau worked 39 hours and was paid his normal salary of $1,080.00 since he has an agreement with his employer that the salary covers all hours worked with the exception of the work hours over 40. If he had worked 43 hours, his pay would have been: $1,080.00 / 35 hours = $30.86 hour $30.86 x 1.5 = $46.29 $46.29 x 3 = $138.87 $1080.00 + $138.87 = $1,218.87 gross

Paying More than the Minimum Wage

In some cases, wages higher than the minimum must be paid to some employees. Effective January 30, 2022, employees of federal contractors must be paid at least $15.00 per hour. The rate will be increased every year by the Secretary of Labor based on increases in the Consumer Price Index. Employees in states that have a higher minimum wage rate than the federal rate must be paid the higher rate. By April of 2021, the average hourly earnings of workers in the United States was $30.17, which represented an average annualized growth rate of 4.2 percent.

Interns

In the public and nonprofit sectors, volunteer interns who do not expect compensation are generally exempt from FLSA requirements. Interns in the for-profit sector may be exempt from the minimum wage and overtime requirements of the FLSA when they receive training for their own educational benefit.

Touch-Screen Technology

In this system, data can be collected and processed instantaneously. The system requires employees to punch in and out on touch-screen personal computers (PCs), which are connected to the company's main computer server. These touchscreen kiosks are also used to provide information back to the employee regarding the organization.

Individual employee coverage

Includes employment in a fringe occupation closely related and directly essential to the production of goods for interstate commerce. Though business does not meet enterprise coverage test, it must pay FLSA wages to those workers eligible for individual coverage. Glenn Morris works for a small manufacturing firm that has an annual sales volume of $370,000. Although the firm does not meet the $500,000 volume-of-sales requirement for enterprise coverage, Morris is individually covered since he operates machinery used to produce goods for interstate commerce. Federal Wages & Hour Law provides for both these types of coverage

Self-Study Quiz 2-1

Indicate which of the following statements regarding the Fair Labor Standards Act are false. Under the FLSA, wages include sales commissions and bonuses paid for employee performance. True Direct care workers must always be paid overtime compensation in addition to the minimum wage. False Rationale Direct care workers employed by a family or individual are not covered if only performing fellowship and protection services. A son working for his parents in a family-owned business is not covered under the FLSA. True Individual employee coverage under the FLSA applies only if fellow employees are engaged in similar activities. False Rationale Individual employee coverage is not affected by the work of fellow employees. A college may pay its own full-time students less than the minimum wage. True

Child-Labor Provisions Violations

Maximum fine of $13,227 without serious injury or death of any employee under 18 years old ($60,115 if serious injury or death occurs). Minimum fine of $6,000 per violation for illegally employing 12-13 year olds ($8,000 for under 12 year olds). Willful or repeated violations will cause a maximum penalty of $120,230. It is unlawful to discharge or discriminate against an employee because the individual has filed a wage-hour complaint. This could result in a lawsuit in which lost wages, liquidated damages, and even punitive damages are awarded.

Tipped employees summary and Example

Minimum tipped wage is $2.13/hour; therefore, tip credit that employer may take = $5.12/hour (May be calculated differently based upon state law) Employee must make $7.25/hour when combining tips/wages ($7.25 X 40 = $290 minimum weekly gross) Tip credit remains the same ($5.12/hour) for OT pay Facts: Raquel works 47 hours at Christchurch Bar as a tipped employee. She averages $750 tips/week. If her employer takes the maximum tip credit ($5.12/hour), Raquel's gross pay will be calculated as follows: (40 hours x $2.13) + (7 hours x (10.88 - $5.12)) = $125.52 Note: $7.25 minimum wage x 1.5 = $10.88 OT minimum wage Examples of tips received for 40-hour workweek 1. Reported tips = $43 Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290? ($127.20) No - so employer must pay additional wages of $290 - $43 = $247 2. Reported tips = $1,189 Is $85.20 + $1,189 > $290? Yes - so employer pays $85.20 wages Notes: (a) states tip credit percentages may differ from federal law, (b) if employees must share tips with dishwashers, etc., then credit is lost.

MOST COMMON PAY PERIODS

Most common pay periods are as follows Weekly (52) - 40 hours each pay period Biweekly (26) - 80 hours each pay period Semi-monthly (24) - different hours each pay period Monthly (12) - different hours each pay period Employer may have different pay periods for different groups withing same company.

Table of Decimal Equivalents to Convert into Weekly, Hourly, and Hourly Overtime Salary Rates

Numerous tables of decimal equivalents, such as the one shown in Figure 2.5, help in converting wages to an hourly rate. Example: Weekly salary $550: $550 x 0.025 = $13.75 hourly $550 x 0.0375 = $20.63 ot rate Monthly Salary: $1,800: $1,800 x 0.00577 = $10.39 hourly $1,800 x 0.00866 = $15.59 OT rate

Paying a "Living Wage" In 2007, Maryland became the first state to have a living wage law (covers contractors and subcontractors with a state contract for services at $100,000 or more). Depending on the area of the state, in 2021 the wage rates ranged from $10.83 to $14.42 per hour.

Over 100 cities have enacted local ordinances to require employers who do business with the government to pay a "living wage" to their low-wage workers. The movement, started by local advocates, grew out of the failure to keep the national minimum wage on pace with the needs of the working poor. Recently, some living wage laws have been passed that also include private industry doing business within the cities' jurisdiction. In Miami, all city workers and workers for companies that have contracts (over $100,000) with the city after October 1, 1986, must be paid $13.88 per hour with health insurance coverage or $17.45 per hour without coverage (for contracts entered into before October 1, 2016, the rates are $14.10 and $16.14 respectively). In Santa Fe, New Mexico, the living wage rate is set at $12.32 per hour with the value of any employer-provided health benefits credited against this minimum.

Partnerships

Partners generally are not employees of the partnership. In some cases, however, a partnership may operate as an association that may be classified as a corporation. In such situations, any partner who renders services similar to those of corporate officers would be an employee.

Preliminary and Postliminary Activities

Preliminary and postliminary activities are compensated if one of the following conditions is met: There is a prior agreement between the employer and employee. It is customary in the industry. It is an integral and indispensable part of the employee's principal activity. Under the Portal-to-Portal Act, unless one of the above conditions is met, these activities are not compensated. Some examples of activities regarded as preliminary and postliminary include: walking, riding, or traveling to or from the actual place where employees engage in their principal activities; checking in and out at the plant or office and waiting in line to do so; changing clothes for the convenience of the employee, washing up and showering unless directly related to the specific type of work the employee is hired to perform; and waiting in line to receive paychecks. Activities that qualify as "work time" but the time spent on them is so short that they are considered de minimis (insignificant) need not be compensated.

Cloud-Based

These are online time clock software systems. Employees can use any computer or smart device to clock in and out. Employees can check their work schedules, can request time off, and can keep account of their upcoming shifts through a Web site or app. Employers can also use a computer or smart device to create work schedules, to see who is clocked in, and even track labor cost by comparing it to budgeted cost.

Idle Time

Readiness to serve can also be considered employment. If the time spent while idle was primarily for the benefit of the employer, this time must be compensated. However, even if workers are required to carry a beeper, pager, or cell phone, this on-call time is not compensable, provided they can use this time for their own purposes. Also, travel limitations during this on-call time does not make it work time.

Converting Semimonthly Salary Rates to Hourly Rates

Semimonthly salary rates are converted the same as monthly rates except semimonthly earnings are multiplied by 24 instead of by 12 to compute the annual earnings. Example: Margaret Johnson earns $1,175 semimonthly. 24 x $1,175 = $28,200 annual $28,200 / 52 = $542.31 weekly $542.31 / 40 = $13.56 hour $13.56 x 1.5 = $20.34 OT rate

Internet

Some Web-based time accounting systems now allow employees to "clock" in and out via the Internet. Employees use passwords to log on to a secured Web site. This site can also be used by the employees to check their hours worked, vacation time accrued, and messages from the Human Resources Department. This can also be accomplished through the use of mobile and wireless data collection devices (cell phones, personal digital assistants, and Global Positioning Satellite—GPS—enabled smartphones). Without ever visiting their office, employees can enter time and labor information.

Equal Pay Act

The Equal Pay Act amended the FLSA to require that men and women performing equal work must receive equal pay. The Equal Pay Act applies to any employer having workers subject to the minimum pay provisions of the Wage and Hour Law. The equal-pay requirements also apply to white-collar workers and outside salespersons, even though they are exempt from the minimum wage standards. The Equal Pay Law prohibits an employer from discriminating by paying wages to employees of one sex at a lower rate than those paid the opposite sex for equal work on jobs that require equal skill, effort, and responsibility and that are performed under similar working conditions. However, wage differentials between sexes are allowable if based on a seniority system, a merit system, a payment plan that measures earnings by quantity or quality of production, or any factor other than sex. If an unlawful pay differential between men and women exists, the employer must raise the lower rate to equal the higher rate.

Workweek

The FLSA defines a workweek as a fixed and regularly recurring period of 168 hours—seven consecutive 24-hour periods. The individual employee's workweek is the statutory or contract number of hours to be worked regularly during that period. The workweek may begin on any day of the week and need not coincide with the calendar week. An employer may establish the same workweek for the business operations as a whole or assign different workweeks to individual workers or groups of workers. An employer may change the day a workweek begins if intended to be a permanent change and not just to evade the overtime pay requirements of the FLSA. If, however, a union contract fixes the workweek, the employer's right to change the workweek depends upon the wording in the contract. Each workweek stands alone, and the overtime hours worked in one week may not be shifted to another workweek. Thus, each workweek is a separate unit for the purpose of computing overtime pay. According to the U.S. Office of Personnel Management, the average American worker spends 261 days per year at work.

Employer (ER) & Employee (EE) Defined

The FLSA defines an employer as "any person acting directly or indirectly in the interest of an employer" in relation to an employee. In order to protect employees, courts have defined "employers" in the broadest sense. Co-owners who control the day-to-day operations of the business are employers who are individually liable for violations of the law. An individual is an employee if he/she performs services in a covered employment: As long as the common-law relationship of employer and employee exists and the employment is not exempt from the provisions of the law, both are covered and must observe its provisions. No differentiation is made between regular, temporary, substitute, or part-time workers. If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Employee Work Status for purposes of Federal Employment Taxes and Income Tax Withholding. Over 90 percent of these filed forms were determined to be for employees. IRS test based on behavioral control, financial control, or relationship between EE and ER. Specific rules apply to employees of corporations, domestic employees, interns, partners, in partnerships, and statutory employees. Statutory nonemployees-- direct sellers and licensed real estate agents-- are considered self-employed. (Not treated as employees for federal tax purposes)

Absences

The FLSA does not require an employer to pay an employee for hours not worked because of illness. For employees on an hourly wage basis, the time card shows the exact hours worked. In addition, the time off for absences does not count toward the 40 hours for overtime pay purposes even if the employee is paid for the absences. In practice, most U.S. employers provide vacation days, sick days, and/or paid time off (PTO) days for full-time employees. Only one-third of employers offer paid leave to part-time employees. In the case of bad weather that prevents exempt employees from getting to work, a full day's pay can be deducted from their pay. However, the employees could be required to use their leave time to cover the missed day. If the business closes, the employer could require the use of leave time, but cannot deduct a day's pay.

Areas Not Covered by the FLSA

The FLSA does not require employers to: Pay extra wages for work on Saturdays, Sundays, or holidays. Pay for holidays, vacations, or severance. Limit the number of hours or work for persons 16 years of age or over. Give holidays off. Grant vacation time. Grant sick leave.

Rest Periods and Coffee Breaks

The FLSA does not require that an employer give employees a rest period or a coffee break. However, the employer may grant such rest periods voluntarily; or the union contract or municipal or state legislation may require them. In these cases, the time spent on a rest period of 20 minutes or less counts as part of the hours worked. If longer than 20 minutes, the compensability for the time depends upon the employee's freedom during that time or upon the provisions of the union contract.

White-Collar Workers

The FLSA exempts some workers, such as executives, administrators, professional employees, highly compensated employees, computer professionals, and outside salespersons, from the minimum wage and overtime pay provisions if they satisfy certain tests.

The Minimum Wage

The FLSA of 1938 established a minimum wage of 25 cents per hour for a straight-time workweek of 44 hours. With the objective of improving the purchasing power of covered workers, succeeding amendments to the FLSA increased the minimum hourly rate and reduced the workweek. The Fair Minimum Wage Act of 2007 increased the minimum wage to $7.25 beginning on July 24, 2009. In 2020, over 55.5 percent of all wage and salary workers were paid hourly rates. Out of those, 1.5 percent were paid at or below the minimum wage, with half of those workers under the age of 25. As part of pandemic stimulus packages started in 2021, a proposal was made to increase in a series of steps the minimum wage to $15.00 per hour. At the time this text was written, no increases have been voted on. It is expected that some increase will take place before the end of 2021. Included in the regular rate of pay is all remuneration for employment paid to or on behalf of the employee. Some examples are: Commission payments. Earned bonuses (nondiscretionary bonus—which is a bonus normally based on hours worked, units produced, production efficiency, or work quality). Severance pay. On-call pay. Shift or weekend differentials. A discretionary bonus, which is a bonus not agreed upon, announced, or promised before payment, is not included in an employee's regular rate of pay. The employer retains discretion both to the granting and to the amount of the bonus until close to the end of the period for which the bonus is paid (discussion of nondiscretionary bonus). The country with the highest minimum wage is Luxembourg, where the minimum hourly wage is set at the equivalent of $18.33 in U.S. dollars. The law also allows employers to credit the reasonable cost of housing, meals, and transportation to work that they provide towards payment of the minimum wage. To qualify, these facility credits must be furnished for the employee's benefit and must be accepted voluntarily by the employee. Some other payments are not included in the regular rate of pay. Examples are: Gifts made as a reward for service. Payments for a bona fide profit-sharing or savings plan. Payments for periods when no work is performed—vacations, holidays, sick days, or jury duty days. Payments reported as part of a guaranteed minimum number of hours paid that are more than the actual hours worked. Allowances for vehicles, tools, and uniforms that are considered an offset of employee expenses. Call back pay that is infrequent and sporadic. Certain sign-in and longevity bonuses. Cost of providing certain parking benefits, wellness programs, gym access, employee discounts on retail goods or services, and certain tuition benefits.

Child-Labor Restrictions

The FLSA prohibits a business from the interstate shipment of its goods or services if it employs child labor unlawfully. Under the FLSA, the secretary of labor issues regulations that restrict the employment of individuals under the age of 18. The restrictions divide child employment into nonfarm occupations and agricultural occupations. The Department of Labor prohibits occupational driving for minors except on an occasional or incidental basis. Permitted driving can only be done during daylight hours and in vehicles not exceeding 6,000 pounds. In New York state, 16- and 17-year-olds are prohibited from driving in Manhattan.

Records used for timekeeping

The FLSA requires employers subject to the law to keep certain time and pay records. For example, employers must keep records that indicate the hours each employee worked each workday and each workweek. How the employer chooses the methods of keeping time records depends on the size of the company and whether employees are paid on an hourly, weekly, biweekly, semimonthly, or monthly basis. Employees on a salary basis usually work a given number of hours each day and can be required to record and track their hours and to work a specified schedule. Employees on an hourly wage basis may work a varying number of hours with some "down time" and layoffs and some overtime work. All of this time must be recorded in some way. Time sheets - indicate arrival/departure time of employee Time cards- record the hours worked, the rate pay, deductions, and net pay. Computerized time/attendance recording systems Card-generated systems - used computerized time cards Badge systems - employ badges in conjunction with electronic time clocks Cardless and badgeless systems - require that an employee use their PIN number to process timekeeping PC-based system - allows employee to clock in via computer. Next generation technology evolving due to more employees working outside of traditional office. Includes touch screen kiosk, internet, biometrics and IVR (interactive voice response)

Overtime Hours and Overtime Pay

The FLSA requires overtime pay for all hours worked in excess of 40 in a workweek. The FLSA requires no overtime pay for daily hours worked in excess of any given number or for work on Saturdays, Sundays, holidays, or other special days. The law requires overtime pay to be one and one-half times the employee's regular hourly rate of pay, which must not be less than the statutory minimum. If the state's overtime rule is more generous than the FLSA's, the state law is followed. The payment for the overtime worked must generally be made on the regular payday for the time period in which the overtime work took place. If an employee's regular rate of pay is $18.40 an hour, the overtime rate must be at least $18.40 × 1.5, or $27.60 an hour. With some restrictions, employees covered under the FLSA can be required by their employers to work overtime. If they refuse, they can be fired under the law. There is also no limit on the overtime that can be required. However, in these cases, the state laws may be the governing force. On the other side, employees should only work overtime if authorized in advance by a supervisor and this should be a written policy. The consequences of unauthorized overtime must be communicated to all employees. Discipline for violating this policy must be administered equally, but payment must still be made for these non-approved hours. If reprimands do not work, suspension and even termination can legally result. In cases of disputed overtime work, courts have ruled that the employee bears the burden of proof. However, if the employer fails to keep proper and accurate records as required by the FLSA, the employer will bear the consequences of the failure. California defines overtime as any hours worked over 8 in one day, 40 in a workweek, and hours on the 7th consecutive day in a work week, and also provides for double-time pay for hours over 12 in one day and over 8 on the seventh consecutive day worked. If an hourly-rate employee works in pay periods of two weeks or longer, the employer can elect to give the employee 1.5 hours off for every overtime hour. However, the time off must be in the same pay period as the overtime hours worked, e.g., an employee works 44 hours the first week of a biweekly pay period; he works 34 hours in the second week and is paid for a total of 80 hours [40 + (4 O.T. × 1.5) + 34]. In the case of tipped employees, the same tip credit also applies to overtime hours. The regular rate of pay for a tipped employee is the current minimum wage—$2.13 plus $5.12 tip . Time and one-half of $7.25 is $10.88. Since the employer can use the same tip credit for overtime hours, the employee's overtime cash wages are $5.76/hour ($10.88 − $5.12). Workweek established by corporate policy Must be seven consecutive 24-hour periods. For example 12:01 a.m. Saturday - 11:59 p.m. Friday Exceptions to the above are as follows. Hospital employees, overtime for 80+ hours in 14 days or over 8 hours in any workday (whichever is greatest) Retail or service industry employees if their regular weekly pay rate, including commission, is $10.88 or more (special rules) Employee receiving remedial education.

Fractional Parts of an Hour

The FLSA requires that employees be paid for all time worked, including fractional parts of an hour. An employer cannot use an arbitrary formula or an estimate as a substitute for determining precisely the compensable working time which is part of an employee's fixed or regular hours. Uncertain and indefinite working periods beyond the scheduled working hours cannot be practicably determined. Therefore, a few seconds or minutes may be disregarded. Some courts have allowed from 10 to 20 minutes to be ignored, while other courts have refused to apply the law to periods as small as 10 minutes. Generally, a few minutes of time spent by employees on the company premises for their own convenience before or after their workdays are not included in the hours worked. Employers using time clocks may round starting and stopping times of their employees to the nearest 5 minutes, or to the nearest 6 minutes (tenth of an hour), or 15 minutes (quarter of an hour). However, consistently rounding time down to the nearest 5 minutes or one-tenth or one-quarter of an hour would be a violation in that employees would not be properly compensated for all time worked. These rules must be administered fairly and consistently. The Labor Department states that the rounding must not result, over a period of time, in a failure to compensate employees for time they have actually worked. Safe methods to use would be: Minute-based—in case of 15-minute intervals, pay for the full quarter hour if 7 minutes late; if 8 minutes late, do not pay for that quarter hour. Start-stop—round off in the employee's favor at all starting times, but to the employer's favor at all quitting times. Safe—always round to the employee's favor. In the case of union or other employment contracts, the method of computing regular and overtime rates may be prescribed in the contracts.

Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA), commonly known as the Federal Wage and Hour Law, contains provisions and standards concerning minimum wages, equal pay for equal work regardless of sex, overtime pay, recordkeeping, and child labor. The Wage and Hour Division of the U.S. Department of Labor (DOL) administers the act. A National Call Center has been established by the Department of Labor to answer employees' and employers' questions on a range of employment issues. The toll-free number is 1-866-4-USA-DOL http://www.dol.gov/ U.S. Department of Labor Employment Standards Administration homepage. This site contains various sections of code, such as affirmative action and workers' compensation. To find the most useful information, choose the ESA program that interests you.

Nonfarm Occupations

The basic minimum age for most jobs is 16 years. This is the minimum age for work in manufacturing and processing jobs or in any other occupations except those declared by the secretary of labor as hazardous for minors under 18. The FLSA lists 17 occupations that are considered too dangerous. These include mining, forestry, excavation, roofing work, operation of certain power-driven tools, and most on-the-job driving. However, employees ages 16 and 17 may work an unlimited number of hours each week in nonhazardous jobs. Within certain limits, 14- and 15-year-olds may be employed in retail, food service, and gasoline service establishments. For example, this age group may be employed in office and clerical work, including the operation of office machines; cashiering; selling; price marking and tagging by hand or by machine; errand and delivery work; kitchen work and other work involved in preparing and serving food and beverages; dispensing gasoline and oil; and car cleaning. The employment of minors between the ages of 14 and 16 cannot interfere with their schooling, health, and well-being. In addition, the following conditions must be met: All work must be performed outside school hours. There is a maximum 3-hour day and 18-hour week when school is in session (8 hours and 40 hours when not in session). All work must be performed between 7 a.m. and 7 p.m. (9 p.m. during the summer). A Wendy's franchise owner in Michigan had to pay $258,000 in fines for allowing teen workers to operate deep fryers and permitting 14- and 15-year-olds to work more than three hours on school days and over eight hours on non-school days.

Agricultural Occupations

The employment of children under age 12 is generally prohibited in agricultural occupations, as described below. During hours when school is in session. Outside school hours on farms, including conglomerates, that used more than 500 man-days of labor in any quarter of the preceding calendar year. Outside school hours on noncovered farms without parental consent. However, children may work on farms owned or operated by their parents or guardians. Children 10 and 11 years old can work as hand harvest laborers outside school hours for up to eight weeks between June 1 and October 15, with a number of strict conditions on the employer. Children aged 12 and 13 may be employed only during hours when school is not in session provided there is parental consent, or the employment is on a farm where the parents are employed. Children aged 14 and 15 may be employed, but only during hours when school is not in session. No child under the age of 16 may be employed in a hazardous farm occupation, such as operating large tractors, corn pickers, cotton pickers, grain combines, and feed grinders.

Computerized Time and Attendance Recording Systems

The main kinds of computerized time and attendance recording systems include: Card-generated systems—employees use time cards similar to the traditional time cards illustrated earlier. Daily and weekly totals are calculated and printed on the time cards for data entry into the firm's computer system. Badge systems—employees are issued plastic laminated badges containing punched holes or having magnetic strips or bar codes. The badges are used with electronic time clocks that collect and store data, which later become input to the computer system. Cardless and badgeless systems—employees enter only their personal identification numbers (PIN) on a numerical or alphanumerical key pad. This system, like the badge system, uses time clocks to collect and store data for transmission to, and processing by, the firm's computer system. Personal computer-based systems—employees swipe their identification cards across bar code readers connected to personal computers for easy recording of time worked. For example, the Timekeeper, a self-contained, wall-mounted time clock, contains a computer system. This time clock accepts time and attendance data from time cards and computes complex payroll and on-the-job information. Time-clock systems, such as the Timekeeper, eliminate most manual payroll processing operations. Employees receive their own time cards that show their daily attendance record, thus complying with federal, state, and union regulations. The Timekeeper also totals employee hours and rounds out employee time to fractions of an hour in accordance with the payroll practice of the firm. The Timekeeper card, shown in Figure 2.4, is similar to the time card illustrated in Figure 2.3. The mark-sense field at the bottom of the card identifies each employee or supervisor and authorizes access to and use of the Timekeeper. When an employee places the card in the time clock, the computer scans the card, optically verifies the employee's number, and locates the last print line on the card. The time of entry is then printed on the next line. Simultaneously, the computer stores the punch-in time in the system's memory. When an employee punches out, the Timekeeper again verifies the employee's identification number and computes and rounds off the daily and cumulative payroll hours. Next, the actual punch-out time and the computed cumulative hours are printed on the card and stored within the Timekeeper for transmission to a computer for payroll processing.

Briefly explain to the management the benefits and various technologies available under the new generation systems.

The new generation systems allow for: quicker and more accurate data assembly. elimination of calculation errors. easier tracking of labor cost to projects faster and more reliable scheduling. Touch-Screen Technology: The system requires employees to punch in and out on touch-screen personal computers (PCs), which are connected to the company's main computer server. Internet: Web-based time accounting systems now allow employees to "clock" in and out via the internet. Employees use passwords to log on to a secured Web site. Biometrics: It uses a timeclock that reads an employee's unique fingerprint or hand geometry (size and shape) to validate to employee. IVR: A telephone-based time system (Interactive Voice Response) allows employees to use a phone, cell phone, or app on a smartphone for time collection.

Calculating Overtime Pay - Overtime Premium Method

The other method is the overtime premium approach. In this case, the total hours worked (including overtime hours) are multiplied by the regular rate of pay. Then the overtime premium pay is calculated by multiplying the overtime hours by an overtime premium rate of one-half the regular hourly rate. Example: John Escobar's (the prior example) pay would be calculated as follows: 49 hours x $18.50 = $906.50 9 hours x $9.25 ($18.50 x 0.5) = $83.25 overtime Total gross = $989.75 By using the overtime premium approach, an employer could save on the calculation of workers' compensation insurance. Most states do not include the overtime premium in the determination of the workers' compensation insurance costs to employers. Plans in which overtime is paid in advance do not violate the pay requirements of the FLSA. In these plans, in weeks in which an employee works less than the applicable statutory workweek (e.g., 40 hours), the employer will advance the difference in pay to raise it to the standard for the statutory workweek. When overtime is worked, the advances (computed at the time and one-half rate) will offset the overtime pay. A running account must be maintained for each employee, and if the prepayment credits are not sufficient to cover the overtime compensation, the difference must be paid on the following payday.

Principal Activities

The principal activities of employees include those tasks employees must perform and include any work of consequence performed for the employer. Principal activities include those indispensable to the performance of productive work and those that are an integral part of a principal activity. The test of compensability with respect to principal activities requires that there be physical or mental exertion, controlled or required by the employer and performed for the employer's benefit. Employees do not have the legal right to carry their cell phones at work. Employers can require employees to place their phones and other electronic devices in storage lockers. Chad Cabrera is a lathe operator who oils and cleans his machines at the beginning of each workday and installs new cutting tools. These activities performed by Cabrera are part of his principal activity.

Salary Basis

These white-collar employees must be paid their full salary in any week in which any work is performed without regard to the number of hours worked. However, deductions can be made from the salary if an exempt employee misses one or more full days of work for personal reasons, other than sickness or accident. If the employee does not qualify for the employer's sick pay plan or has used up all available sick time, deductions can also be made for these full-day absences. However, if there is not a bona fide sick leave plan, an employer cannot make deductions from the salaries of exempt employees for absences due to sickness. The salary requirement does not apply in cases of law and medicine. A proportionate share of an exempt employee's salary for the time actually worked is allowed only for the employee's first or last week of employment. Example: Kurt Lopez began work this week for the Jaworski Company. Based on a 5-day workweek, his annual salary is $78,000, and he meets the test of an exempt white-collar employee. Since he started working on Tuesday, his first week's pay would be $1,200. ($78,000 / 52 = $1,500) $1500 x 4/5 = $1,200 Partial-day absences cannot be deducted from the exempt employee's salary. However, the Wage and Hour Division has stated that the employer can require the employee to use any accumulated leave time to offset the time absent. Employers should keep records that describe the workweek and the wages paid for that work time and can require exempt employees to record and track hours worked, to work a specified schedule, and to work as many hours as the employer desires as long as their salaries are paid. Exempt status can be lost when employers make improper deductions from the pays of exempt employees. This loss of status only applies to the pay periods when the deductions were made. An exception to the FLSA salary pay requirement is the use of FMLA leave. If an employee works half a day, the other half a day taken for FMLA can be unpaid (if personal time is not used to cover the FMLA part of the day).

Doctor's Appointments

Time spent waiting for and receiving medical assistance on the employer's premises or at the employer's direction during the employee's normal working hours during the workweek is considered time worked. As such, it cannot be deducted from the employee's accrued leave. Most states require time off to vote if voting cannot be done before or after the workday even though there is no such federal law. A few states require employees to be paid for this time.

Test of Exemption

To be eligible for this exemption, the employee must be paid on a salary basis, must be paid at least $684 per week, or $35,568 annually and must meet the "primary duty" requirements as listed in Figure 2.2. This salary must be a predetermined amount that cannot be reduced because of fluctuations in the quantity or quality of the work performed. In addition, employers may use nondiscretionary bonus and incentive payments to satisfy up to 10 percent of the salary level, provided such payments are paid on at least a quarterly basis. For bona fide teachers, the salary level requirements for the white-collar exemption do not apply. In the case of executive, administrative, and professional employees, work not directly nor closely related to the employee's exempt duties cannot exceed 20 percent of their hours worked in a workweek. The exemption is not lost if the wages are computed on an hourly, daily, or shift basis as long as the arrangement includes a guarantee of at least the minimum weekly required amount, paid on a salary basis. The guaranteed amount must be equivalent to the employee's usual earnings at the hourly, daily, or shift rate for the normal scheduled workweek. This would also apply to exempt employees paid on a fee basis for a single job.

Time Rate

To compute the wages of employees on an hourly basis, multiply the total regular hours worked by the regular hourly rate. If the employee works overtime, multiply the total overtime hours by the overtime rate. By adding the total regular earnings and the total overtime earnings, we obtain the gross earnings. (In the examples that follow, if needed, rates have been rounded to two decimal places.) The employee's regular rate of pay includes all payments given for working a particular job. This does not include discretionary bonuses, gifts on special occasions, and contributions to certain welfare plans. In the case of factory workers, many factories compute the actual time spent on a certain job so that amount can be charged to that job. Example: Sonja Patel spent 100 minutes on a certain job. The wages chargeable to that job at the regular hourly rate of $11.58 would be computed as follows: $11.58 x 100/60 (1.67 hours) = $19.30

Paying Less than the Minimum Wage

Under certain conditions, wages lower than the minimum wage may be paid to some employees. Tipped employees. A training wage allows employers to pay $4.25 per hour to newly hired employees under 20 years of age (opportunity wage). This only applies to the first 90 consecutive calendar days of employment. Retail or service establishments and farms may employ full-time students at 85 percent of the minimum wage ($6.1625 per hour, government rounds to $6.17 in favor of the employee). Institutions of higher education may employ their own full-time students at 85 percent of the minimum wage. Student-learners may be employed at 75 percent of the minimum wage if they are participating in a bona fide vocational training program conducted by an accredited school ($5.44 per hour). Firms whose principal business is the delivery of letters and messages may employ messengers at not less than 95 percent of the minimum wage. Persons whose earning capacity is impaired by age, physical or mental deficiency, or injury may be employed at special minimum wage rates. However, a certificate authorizing employment at such rates must first be obtained from the Department of Labor's Wage and Hour Division. The Department of Labor has ruled that undocumented immigrants must also be paid at least the minimum wage and overtime as stipulated in the FLSA. Example: Jim Droghan, a full-time student, works at the Dollar Store. This week he worked 30 hours and earned $185.10. Retail establishments can pay full-time students less than the minimum wage (85 percent). $7.25 x 85% = $6.17/hour $6.17 x 30 hours = $185.10

Piece Rate

Under the piece-rate system, the employer pays workers according to their output, such as an amount for each unit or piece produced. Thus, the wages increase as production increases. The employer keeps production records for each employee so that these records will be available when computing the wages earned by each employee. The Fair Labor Standards Act specifies that under a piece-rate system, the regular hourly rate of pay is computed as shown in the following example. The piece-rate system is used for workers that are paid according to their output. Example: Sally Choi produced 13,000 items during a 40-hour workweek. Choi is paid 4 cents per unit and receives a bonus of 2 cents for each unit over 12,000 in a week. Choi's weekly earnings are: Regular earnings = 13,000 x .04 = $520.00 Incentive earnings = 1,000 x .02 = $20.00 Total weekly = $540.00 Total weekly earnings = $540.00 / 40 hours = $13.50 hr. FLSA requires piecework earners to get paid for nonproductive time. The piece rate must at least equal the statutory minimum wage rate. In some instances, an employer may pay a worker an hourly rate for some hours and a piece rate for other hours during the week. In such cases, both the hourly rate and the piece-rate earnings must be at least the minimum rate. In these piece-rate calculations, when rounding is required (for weekly earnings, hourly rate, overtime rate, or total earnings), carry the calculation to three decimal places and then round off to two decimal places. Must equal minimum wage with OT calculated one of two ways. Method A Units produced x unit piece rate = regular earnings (3) x ($20) = $60 Regular earnings/total hours = hourly rate ($60) / (10 hours) = $6/hour Hourly rate x 1/2 = OT premium $6/hour x 0.5 = $3 OT/hour Regular earnings + (OT premium x OT hours) = gross pay $60 + ($3/hour x 4 hours) = $72 gross pay OR Method B (Units produced in 40 hours x piece rate) + [(Units produced in OT) x (1.5 x piece rate)] = gross pay 4 units x $10 piece rate + [(1 unit) x (1.5 x $10 piece rate) = $55 gross pay Note: The two methods don't give same results!

Time Cards

Under this timekeeping system, each employee receives a time card on which the time worked is recorded manually by the employee or automatically by a time clock. The time card is designed to fit various lengths of pay periods. Figure 2.3 shows one type of time card frequently used for a weekly pay period. The card provides space to record the hours worked, the rate of pay, deductions, and net pay. The Payroll Department inserts the handwritten figures to be used in computing total earnings, deductions, and net pay for the payroll period. Altering employees' time records may not only lead to fines and suits against the organization, but employees can also sue their managers and human resource professionals for personal liability. Some time clocks use the continental system of recording time, where each day consists of one 24-hour period, instead of two 12-hour periods. The time runs from 12 midnight to 12 midnight. Eight o'clock in the morning is recorded as 800; eight o'clock in the evening, as 2000.

Misclassified Workers

Unintentional with a filed Form 1099 (showing nonemployee compensation)—1.5 percent of wages paid + 20 percent of the employee's social security tax. Unintentional without a filed Form 1099—above penalties are doubled. Intentional—100 percent of the worker's federal income tax and social security taxes. In addition to the above, the employer remains liable for any penalties for failure to withhold, to file returns, and to pay taxes.

Wage Theft

Wage theft is a term that refers to situations when employers do not pay employees in accordance with statutory or contract requirements. This includes violations such as not paying minimum or agreed-upon wages, not paying the proper overtime rates, having employees working off of the clock or under the table, or misclassifying employees as consultants. States are now attacking this problem with increased costs of noncompliance. States' remedies include assessing higher fines and penalties, prohibiting companies from receiving state contracts, denying or canceling business licenses, or criminalizing the violations.

Wages

Wages include the remuneration or compensation of paid employees. The terms wages and salaries are commonly used interchangeably. However, wage usually refers to remuneration paid on an hourly or a piecework basis. Salary usually refers to the remuneration paid on a weekly, biweekly (every two weeks), semimonthly (twice a month), monthly, or yearly basis.

Jennifer worked at two different pay rates during the past week. Her main job paid $25 per hour, while the extra job rate was $20 per hour. She worked for 35 hours at the main job and 10 hours at the extra job.

What is the overtime rate that needs to be paid to Jennifer? In cases where an employee works at different rates for different jobs during the same workweek, the employers can, at their option, calculate the overtime in one of three ways. 1. one could pay at the higher rate for the overtime hours. 2. One could calculate it by taking the total earnings for both jobs, dividing by the total hours worked, then taking one-half of this rate, and multiplying by the overtime hours. 3. One could use an overtime rate based on the rate for the job performed after the 40th hours (the employee must have agreed to this in advance)

Converting Weekly Wage Rates to Hourly Rates

When paying on a weekly basis, sometimes employers must convert the weekly wage rate to an hourly rate, especially to figure overtime earnings. To do this, divide the weekly wage rate by the number of hours in the regular workweek. Example: John Hazelton earns $412 a week for a workweek consisting of 40 hours. If Hazelton worked 43 hours in a particular week, compute gross pay as follows: $412 / 40 hours = $10.30 hour $10.30 x 1.5 = $15.45 ot rate Gross pay = $412.00 + (3 hours X $15.45) = $458.35

Taking Work Home

With more and more employees taking work home with them, it is important to understand that this is compensable time. Nonexempt employees must be paid for all hours worked, even those outside the regular workplace. This holds true whether the work was assigned or the employees took on the extra workload themselves. Even if told not to take work home, the employer must pay for the time worked. The only recourse for the employer would be future warnings and, if the practice continues, dismissal of the employee. In a report by Osterman Research, 94 percent of office workers admitted to sending work-related e-mails on weekends. Another area of concern for employers would be employees sending work-related e-mails, even when they are technically off the clock. This time spent is considered work time and could trigger overtime pay. A clear statement on e-mail usage for hourly staff should be part of an employee policy manual.

Next Generation

With more and more employees working outside the traditional office environment, the time clock has not been able to keep up with most companies' needs for time and attendance information. Many companies have been forced to acquire more automated systems. These systems allow for: quicker and more accurate data assembly. elimination of calculation errors. easier tracking of labor cost to projects. faster and more reliable scheduling. The new generation systems can communicate key messages to employees. They allow employees to check their schedules, vacation and sick time balances, and the status of time-off requests.

Statutory Employees

Workers who qualify as independent contractors under common law, but are taxed as employees for social security, are statutory employees. This status applies to agent or commission drivers, industrial home workers, full-time life insurance agents, and full-time traveling or city salespeople.