paying overtime under the flsa part 1: the rules and ... · paying overtime under the flsa part 1:...

©2016 The Payroll Advisor1

Paying Overtime under the FLSA Part 1: The Rules and Regulations of Overtime under the FLSA Part 1

Presented on Wednesday, August 31, 2016

Housekeeping

©2016 The Payroll Advisor

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Our Focus For Today


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All about the rules of overtime

What are hours worked

Tracking hours

What payments to include

What payments do not need to be included

Do the states differ from the FLSA?

About the Speaker


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Vicki M. Lambert, CPP, is President and Academic

Director of The Payroll Advisor™, a firm specializing

in payroll education and training. The company’s

website www.thepayrolladvisor.com offers a

subscription payroll news service which keeps

payroll professionals up-to-date on the latest rules

and regulations.

The Payroll Pause Newsletter from ThePayrollAdvisor.com Announces Its Summer Sale!

Stay up-to-date on the latest payroll news and regulations with The Payroll Pause, an annual subscription

news service from Thepayrolladvisor.com and its founder, Vicki Lambert. Use code P6XJ05K3057 for the

discounted annual subscription price of $99, more than 33% off its normal price. This offer is exclusively

for Ascentis customers and webinar attendees.

http://www.thepayrolladvisor.com/

Definition of Overtime


Overtime pay under the Fair Labor Standards Act is computed at 1 1/2 times the regular rate of pay for all hours worked in excess of the 40 hours in a workweek. There is no limitation on the number of hours an employee may work in any workweek, as long as they are compensated in accordance with the FLSA's requirements.

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But Maybe The States Require…


4 States Require Daily overtime:

AK: 8 hour day

CA (of course!) after 8 in a day and double time as well after 12 and on the 7th day

CO after 12 in a day

NV: paid a base rate of one and one half times the minimum wage or less per hour may be entitled to overtime if they work more than 8 hours in any workday.

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But Maybe the States Require…


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Or special overtime:

KY: Work 7 days in one work week, overtime on 7th day

OR: certain industries only such as mills, factories or manufacturing

Useful Definitions…


It does not need to coincide with the calendar week, but may start on any day at any hour that is convenient for the employer.

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Portal-to-Portal Act


Work Day: The Portal-to-Portal Act of 1947, excludes from hours worked under the FLSA requirements any hours for time spent by an employee "walking, riding, or traveling to and from the actual place of performance of the principal activity or activities" unless these activities are compensable under the terms of a contract, by custom or by practice. The Portal Act also excludes activities performed before or after the employee's principle activities in a workday.

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Hours Worked


No matter what type of time keeping system employers use, problems may arise over the correct treatment of small amounts of scheduled or unscheduled time worked or missed by employees. Employers must pay for all time worked and cannot use rough estimates or arbitrary formulas to compute hours worked

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Keeping Track of Hours Worked


While the FLSA requires accurate records of hours worked, employers are not required to use time clocks, time cards, or any particular type of time keeping system. If a time clock is used, employers are free to disregard early or late punching by employees who voluntarily arrive early or remain after hours, so long as the employees do not perform any work during these times.

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Two Exceptions


Rounding of hours

De minimis or insignificant timekeeping

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Rounding Practices


Rounding practices are acceptable

Rounding employees' starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour.

For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.

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Rounding Example


Using the de minimis rule of 5 minutes the employer would round up or down when six minutes are reached either way. Six minutes makes the change at 7 minutes reached but the 7 minute rule requires that the employer get the advantage of 8 minutes out of every 15. You must be able to demonstrate that both ways are in use not just could be used or it is considered arbitrary.

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Employee

Time

Card

Shows:

Five (5)

Minute

Rule

Six (6) Minute

Rule

Seven (7)

Minute Rule

8:05 Round back

to 8:00

Round back to

8:00

Round back to

8:00

8:06 Round down

to 8:15

Round back to

8:00

Round back to

8:00

8:07 Round down

to 8:15

Round down to

8:15

Round back to

8:00

5:05 Round back

to 5:00

Round back to

5:00

Round back to

5:00

5:06 Round down

to 5:15

Round back to

5:00

Round back to

5:00

5:07 Round down

to 5:15

Round down to

5:15

Round back to

5:00

Rounding Example


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Rounding Example—Fact Sheet #53


Some employers track employee hours worked in 15 minute increments, and the FLSA allows an employer to round employee time to the nearest quarter hour. However, an employer may violate the FLSA minimum wage and overtime pay requirements if the employer always rounds down. Employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.

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Rounding Example—Fact Sheet # 21


Let’s see how this works when we use the quarter hour method by rounding

each punch using the 7 minute rule:

8:02 = 8:00

12:10 = 12:15

1:06 = 1:00

5:05 = 5:00

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1/4

4 ¼ hours

4 hours

Rounding Example—Fact Sheet # 21


By determining the number or hours worked for each series of punches the

total hours worked for the workday can be calculated. This is accomplished

as follows:

8:02 am to 12:10 pm = 4 hours 8 minutes

1:06pm to 5:05pm = 3 hours and 59 minutes

This is a total of 8 hours and 7 minutes. Using the 7 minute rule the

employer would round back and the employee would be paid for a total of 8

hours.

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De Minimis or Insignificant Timekeeping


The de minimis rule applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities.

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Definition of Hours Worked


The FLSA does not give a definition for hours worked. The closest definition is a provision that specifies the term

“ employ” meaning “ to suffer, let, or permit to work”.

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The U.S. Supreme Court Has Ruled Hours Worked Are…


Any time spent in "physical or mental exertion that is controlled or required by the employer."

All hours an employee is required to give to an employer. This includes waiting time if it is for the employer's benefit.

All the time during a workweek that an employee is required to be on the employer's premises.

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Therefore…


To comply with the FLSA, hours worked need to include not only hours actually performing job duties but also any other hours suffered or permitted to work by the employer for the employer's benefit.

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Which Means…


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Work not requested but suffered or permitted is work time. For example: May

voluntarily continue to work at end

of shift

May be piece

worker

May desire to finish an assigned

task

May wish to correct errors, prepare

time reports or complete other duties

The reason is immaterial. If the employer knows or has

reason to believe the employee is continuing to work, the

time is working time and must be paid.

Therefore…


In all such cases, it is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. Employers cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so. (Section 785.11, 12, & 13.)

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Regular Rate of Pay


It is a calculated rate and not just the file rate

The employer must consider many different payments in accurately calculating the correct rate of pay for overtime hours.

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Regular Rate of Pay …


In addition to the contract or file rate, any additional amounts paid for:

shift differential,

non-discretionary bonuses

promotional bonuses

cost of living adjustments

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1. Does Not Include Gifts…


Sums paid as gifts, such as payments in the nature of gifts given during holidays or on other special occasions, or as a reward for service. The amounts of the gifts or payments may not be measured by or dependent on hours worked, production or efficiency. (29 CFR 778.212)

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http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_778/29CFR778.212.htm

2. Does Not Include Nonworking Hours…


Payments made for

occasional periods when

no work is performed due

to vacation, holiday, illness,

failure of the employer to

provide sufficient work, or

other similar cause.

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3. Does Not Include Expenses…


Reasonable payments for traveling expenses, or other expenses an employee incurs while furthering the employer’s interests and that are properly reimbursable by the employer (such as laundering uniforms or buying supplies or materials on behalf of the employer); and other similar payments to an employee which are not made as compensation for the employee’s hours of employment.

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4. Does Not Include Discretionary Bonuses…


Sums paid in recognition of services performed during a given period if one of the following three conditions is met: both the fact that payment is to be made and the amount of the payment are at the sole discretion of the employer at or near the end of the period and not according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.

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4. Example of Discretionary Bonus


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Employee A is told to implement a new payroll system on December 31st

It must be done by March 31st

Employee completes task

Employer decides to give employee a bonus for her hard work on April 5th

Employee did not know that bonus was coming

4. Example of Nondiscretionary Bonus


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Employee A is told to implement a new payroll system on December 31st

It must be done by March 31st

Employee told will receive $1300 bonus if completed on time

Employee completes task and receives bonus

Employee expected bonus—worked to earn bonus

4. Bonuses Normally Included


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Production bonuses

Bonuses which are paid for performing work in less than an established standard time

Bonuses which are paid when certain types of merchandise are sold through an employee’s effort

Cost of living bonuses

Attendance bonuses

Bonuses paid as an incentive to attract employees to an isolated or otherwise undesirable job site

5. Does Not Include Profit Sharing…


The payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift savings plan, which meet additional requirements set forth in the regulations.

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6. Does Not Include Health or Life…


Contributions irrevocably made by an employer to a trustee or third person according to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits to employees.

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7. Does Not Include Premium Pay…


Extra compensation paid at a “premium rate” for certain hours worked by an employee because such hours are hours worked in excess of eight in a day, or in excess of 40 hours in the week, or in excess of the employee’s normal working hours or regular working hours, as the case may be. Such extra compensation may be creditable toward overtime compensation. (29 CFR 778.202)

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8. Does Not Include Premium Pay…


Extra compensation provided by a “premium rate” for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek. The premium rate may not be less than one and one-half times the rate established in good faith for work performed in non-overtime hours on other days. Such extra compensation may be creditable toward overtime compensation. (29 CFR 778.203, 29 CFR 778.205)

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Payments for Suggestions?


No hard and fast rule on this one as suggestion plan is very broad term

Can be excluded if no relations to the earnings of the employee at his job, and

The prize is a bona fide award (not substitute for wages), and

No employee is required to participate or led to believe that he will not merit promotion unless he submits suggestions, and

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Payments for Suggestions?


The invitation to submit suggestions is general in nature, and

No time limit to submit suggestion, and

The employer has no notice or knowledge the employee is submitting the suggestion until it is submitted

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Regular Rate of Pay…


Is an hourly rate

Employers not required to pay employees by the hour but may pay by the hour, piece, salary, commission or other type of payment

Overtime must be computed on an hourly basis

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Regular Rate of Pay…


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

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Methods for Calculating Overtime


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FLSA way:

This requires calculating all the straight time due and adding the “overtime premium” to reach 1 ½ the employee’s regular rate of pay.

It is used when additional compensation other than straight time and overtime hours are paid.

Example: when the employee receives a non-discretionary bonus.

Doing the Math… Following the Steps


This will be done in our next webinar of this series

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Additional Resources


www.dol.gov

Overtime calculator:

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

Hours worked:

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

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http://www.dol.gov/

Are There Any Questions?


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How Can Ascentis Help Me?

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• Configurations options including:

• Overtime distribution frequency

• Premium hours

• Pay matrix distribution hours and adjustments

• Each employee can be configured to be eligible or ineligible for FLSA overtime calculations, and FLSA adjustment summaries are available

To earn RCH credit you must


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Be watching using your unique URL

Certificates delivered by email, to registered email,

by October 3rd

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Watch from anywhere, at anytime, at no cost to you!

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