Chapter 2 - Computing Wages & Salaries

How does the FLSA define an "employer"?

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

Enterprise Coverage does not apply to:

"mom and pop" shops

If an employee's regular rate of pay is $18.40 an hour, the overtime rate must be at least:

$18.40 × 1.5 (overtime multiplier) = $27.60/hr $27.60/hr (new OT rate)

The regular rate of pay for a tipped employee is the current minimum wage. What is the breakdown of that wage (for tipped employees)?

$7.25/hr (min wage) $2.13 employer wage $5.12 tip credit

What is *common-law relationship* of employer and employee?

When the employer has the right to control both what work will be done and how it will be done.

What is a statutory employee?

Workers who qualify as independent contractors, but are taxed as employees for social security.

Under the FICA tax law, are executives and other top-tier individuals in a company counted as employees?

Yes, *Managers, superintendents, supervisors, department heads*, and other executives of a corporation are considered employees. All *officers*, such as the president, vice president, secretary, and treasurer, are also employees

Discretionary bonus

a bonus not agreed upon, announced, or promised before payment. (not included in an employee's regular rate of pay)

Tip

is a gift or gratuity given by a customer in recognition of service performed

What provisions and standards does the FLSA oversee?

minimum wage equal pay for equal work overtime pay record keeping child labor laws

An exception to overtime hours and overtime pay applies to *hospital employees*. (How?)

must receive OT for hours worked in excess of 8hrs in any workday *or* in excess of 80 hours in a *14-day period*

What is *The Fair Labor Standards Act (FLSA)* also known as?

the Federal Wage and Hour Law

Wages

the remuneration or compensation of paid employees

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%). How would you calculate his reduced rate of pay?

$7.25 (min wage) x 85% = $6.17/hr (new rate) $6.17 x 30 hrs = $185.10

What is the overtime rate for tipped employees?

Fed minimum wage for tipped employees is $7.25/hr. Overtime is: $7.25 x 1.5 = $10.88 Employers can use tip credit for overtime hours also. (see next flashcard)

A college may pay its own full-time students less than the minimum wage. (T/F)

True

A son working for his parents in a family-owned business is not covered under the FLSA. (T/F)

True

The FLSA requires payment of the higher wage standard if it is more than the federal $7.25 per hour. (T/F)

True

Under the FLSA, wages include sales commissions and bonuses paid for employee performance. (T/F)

True

An employer may consider, within prescribed limits, the tips received by a tipped employee as part of the employee's wages. (T/F)

True Tips received by the employee are credited toward the remainder of the total minimum wage.

In some cases, wages higher than the minimum must be paid to some employees. What scenarios?

*Employees of federal contractors* must be paid at least $10.20 per hour (and be provided 56 hours of paid sick leave per year). Employees in *states that have a higher minimum wage rate than the federal rate* must be paid the higher rate.

Under what conditions/scenarios can employers pay *below* minimum wage?

A *training wage* - newly hired employees under 20 years of age (opportunity wage). Applies to the first 90 consecutive calendar days of employment. *Retail or service establishments and farms* may employ full-time students at *85%* of the minimum wage. *Institutions of higher education* may employ their own full-time students at *85%* of the minimum wage. Student-learners may be employed at 75% of the minimum wage if they are participating in a bona fide vocational training program. Firms who *deliver letters and messages* may employ messengers at not less than *95%* 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.

Who is an employee?

An individual is an employee if he or she performs services in a covered employment.

(Lab Tech part 2) If Maloney works 12 hours in one day during the period and only 7 hours in each of the 9 other days, a total of 75 hours.

She would be entitled to: 71 hours of straight-time pay 4 hours of overtime pay (even though she worked less than 80hrs in the agreed 14day period, *she still worked more than 8hrs on one day* - still receiving OT)

How much does a tipped employee earn in OT (overtime) cash wages? (Remember, employers can use the $5.12 tip credit from regular wage towards OT wage).

Total earnings from OT rate: $10.88 ($7.25 x 1.5 = $10.88) Tip credit: $5.12 Employer pays $5.76 OT wage ($10.88 - $5.12= $5.76)

Statutory nonemployees

considered self-employed as long as their *earnings are based on 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.

Enterprise coverage includes all employees of an enterprise if:

1. At least two employees engage in interstate commerce or produce goods for interstate commerce. 2. The business has annual gross sales of at least $500,000.

Alfred Sims 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 Alfred worked 44 hours, the restaurant would pay him: (this is only what the restaurant pays him)

40hrs x $2.13 = $85.20 (reg rate) 4hrs x $5.76 = $23.04 (OT rate) ------------------------ $108.24

What are domestic services?

Domestic service consists of services of a household nature performed in or about a private home of the person who employs the domestic.

Included in the regular rate of pay is all remuneration for:

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

Direct care workers employed by a family or individual are not covered if only performing fellowship and protection services. Direct care workers must always be paid overtime compensation in addition to the minimum wage. (T/F)

False

Goals of the chapter:

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.

Workweek

FLSA defines a workweek as a fixed and regularly recurring period of 168 hours It is 7 consecutive days, 24hr periods. *Work week can start on any day.

What does *FLSA* stand for?

Fair Labor Standards *Act*

Payments not included in regular rate of pay:

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.

What is the overtime rule for domestics [workers]?

If the domestics *do not live in the household*, they must be paid overtime as well as the minimum wage. *live-in* domestics do not have to be paid overtime.

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 4 hours of overtime pay (because she worked 4 hours more than the standard 8hrs agreed upon that one day *and* because she also worked 4hrs more than the pay period allowed)

Overtime pay is not required when...

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*

When is overtime pay required, according to the FLSA?

The FLSA requires overtime pay for all hours worked in excess of 40 in a workweek.

How does the IRS determine if a worker is classified as an employee (and if an employer has the right to control)?

The IRS uses a test based on *behavioral control*, *financial control*, and the *relationship* between the worker and the employer.

Two types of statutory nonemployees:

direct sellers licensed real estate agents

Overtime Pay Rate

one and one-half (1.5) times the employee's regular hourly rate of pay If the state's overtime rule is more generous than the FLSA's, the state law is followed.

Individual Coverage of an employee depends on:

the activities of the individual employee *Not* on the work of fellow employees, the nature of the employer's business, or the character of the industry as a whole.

Who administers the provisions of the FLSA Act?

The Wage and Hour Division of the *U.S. Department of Labor (DOL)*

What are the two bases of coverage provided by FLSA?

*Enterprise* (coverage) *Individual Employee* (coverage)

If you want the IRS to determine whether a worker is an employee, (for purposes of Federal Employment Taxes and Income Tax Withholding), what form is needed?

*Form SS-8* *Determination of Employee Work Status*

Domestic workers must be paid the minimum wage if (2):

1. They perform services in one or more homes for a total of *8 hours or more in any workweek* OR 2. They earn wages of at least *$2,000* from an employer in a *calendar year*.

What does the ABC test *check for* to determine an independent contractor? (3)

1. is free of direction and control in the performance of the work. 2. performs services outside the usual course of business of the company that has hired the contractor. 3. customarily engages in an independent occupation.

Exceptions to places that can still have enterprise coverage (without needing gross sale of $500k):

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.

Individual employee coverage is not affected by the work of fellow employees. Individual employee coverage under the FLSA applies only if fellow employees are engaged in similar activities. (T/F)

False

Practice Problem: Tipped Employees 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 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.

In this problem we know: The fed min wage is $7.25/hr James worked 40hrs/week In wages, James earned $100/week In tips, James made $100/week Because James is a tipped employee, his employer can avoid paying him the minimum wage by allowing his tips to factor into the equation (which is bullshit, but hey). What we need: We need to know what James' earnings for the week would be if he were paid the fed min wage for his 40 hrs worked. $7.25 x 40hrs = $290.00 This is how much an employer should be paying the week. James brought home $100 from his employer, and another $100 from tips. A total of $200. We are still $90 short. The employer pays the difference and gives James $90 more so that he takes home $290 - what's needed to meet federal requirements for minimum wage.

What is interstate commerce?

Interstate commerce refers to the trade, transportation, or communication among several states or *between a state and any place outside that state.*

Are individuals involved in partnerships considered employees?

Partners *generally are not* employees of the partnership.

Difference between *wage* and *salary*

Wage refers to remuneration paid on an hourly or a piecework basis. Salary refers to remuneration paid on a weekly, biweekly, semimonthly, monthly, or yearly basis.

Is a co-owner an employer? Are they liable for violations of employment law?

Yes. Co-owners who control the day-to-day operations of the business are employers who are individually liable for violations of the law.

Individual Employee Coverage (FLSA) covers:

a worker if the employee either engages or produces goods for *interstate commerce*. even if occupation is closely related and directly essential to the production of goods for interstate commerce.

What does the *"ABC test"* define?

an independent contractor (nonemployee)