Tips from a Paycor Expert: How to Calculate Overtime Pay
Posted on December 11, 2012
Over the past few years, calculating overtime pay has become a hot topic for employers and employees alike. Unfortunately, it has also become a prime target for plaintiffs’ attorneys. Even with recent revisions, the Fair Labor Standards Act (FLSA) is an extraordinarily difficult statute to comprehend and comply with, leading to many lawsuits and a lot of headaches.
The FLSA, enacted in 1938, states that:
* Covered non-exempt employees should receive time and a half if they work more than 40 hours in a workweek.
* The rate used to calculate overtime pay can’t be less than the federal minimum wage.
* The overtime pay requirement may not be waived by an agreement between the employer and the employee.
Let’s review three key concepts that employers need to understand:
1. Defining the Workweek
Workweek: 168 hours in seven consecutive 24-hour periods that can begin on any day and at any time
It is not necessary that all employees of a company have the same workweek. Once you have defined the workweek for your employees, it cannot be changed to avoid paying any overtime. However, there are certain procedures you are required to follow if you want to change a workweek.
In general, overtime pay is to be determined individually for each week worked. For example, if your employee, Sarah, worked 42 hours this week and 38 hours the week before, and payday is every other week, she will be entitled to 2 hours of overtime pay. Even though Sarah’s time averages out to 40 hours for both weeks, overtime pay is calculated on a weekly basis. Come payday, Sarah should receive overtime pay for 2 hours.
There are a few exceptions where overtime can be calculated on a longer defined period and within specific guidelines, such as overtime pay for police officers, fire fighters and health care workers.
2. Hours Worked
Hours worked: All times an employee must be “on duty”
This includes if employees are required to be at a certain location to begin work or remain at the employer’s place of business to perform services.
To provide some common examples, the following activities are generally not included in the hours worked:
* Hours that were paid but not worked, such as paid time off (PTO)
* Travel to and from work
* Checking in and out of the workplace
* Breaks greater than 20 minutes (possible exception: sleeping time on long shifts)
Unless you have a policy that states employees are not allowed to work certain hours, all hours worked in excess of 40 hours per workweek must be paid time and a half.
3. Regular Rate of Pay
Regular rate of pay: Based on the amount of calculated earnings divided by the number of hours worked
“Calculated earnings” includes the base rate as well as any additional compensation, such as commissions or piece rates. For any hours worked over 40 hours in a workweek, employees are entitled to time and a half, meaning at least 1.5 times their regular rate of pay.
Payments to be included (as defined by FLSA rulings)
Hourly Example Calculation:
The Paper Company paid Tom a production bonus of $200.00. He worked 48 hours this week and is paid $9.00 per hour.
Salaried Non-Exempt Calculation
Sam’s sales administrator often works overtime hours, and she has signed an agreement with her employer that no matter how many hours she works in a given week, she will receive a weekly salary of $600. This is a fluctuating workweek. However, that agreement does not waive her right to overtime pay under the FLSA.
Last week she worked 44 hours was awarded a commission of $350.
* The regular rate of pay cannot be less than the federal minimum wage
($7.25 as of December 2012).
* Review the work-in state minimum wage and overtime pay laws, some of which provide greater worker protections than those provided by the FLSA. The law which benefits the employee is to be observed. Visit the Department of Labor’s website to learn more.
* Unpaid overtime can result in stiff fines and even imprisonment for the employer.
* Under the Fair Labor Standards Act (FLSA), any employer who violates unpaid overtime compensation laws may be liable for both the shortfall and the amount due to the employees.
Learn more about FLSA overtime regulations from the Department of Labor.