The Interesting Problem of Salaried Non-Exempt Employees, continued.

Last week we talked about some general issues with so-called “salaried non-exempt employees.” And we left it wondering if you could have a salary that covered “all the hours that an employee works in a workweek, no matter how many there are.” We call that a “cliff hanger.” I know you were on the edge of your seat for the whole week waiting for the answer. And the answer is . . . (that’s a drum roll in case you didn’t get it) . . . of course you can. In fact, there is a Reg for that.

(a) An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.
(b) The application of the principles above stated may be illustrated by the case of an employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee’s compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600.00; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).
(c) The “fluctuating workweek” method of overtime payment may not be used unless the salary is sufficiently large to assure that no workweek will be worked in which the employee’s average hourly earnings from the salary fall below the minimum hourly wage rate applicable under the Act, and unless the employee clearly understands that the salary covers whatever hours the job may demand in a particular workweek and the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked. Typically, such salaries are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate straight-time compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where all the legal prerequisites for use of the “fluctuating workweek” method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for non-overtime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.

29 CFR § 778.114.

They call this a “fixed salary for fluctuating hours” method of payment. It has advantages. For example, when using this method you do simple division to determine the regular rate: The salary divided by the number of hours actually worked in the workweek. Then, you pay HALF TIME for anything over 40. The theory here is the employee has already been paid the straight time rate for all hours worked so only the half-time rate is owed for overtime. And that’s great, but there are a couple of things to keep in mind:

According to the DOL’s guidance, you can only use this method when:

1. The employee is paid a fixed salary that does not vary with the number of hours. That means does not vary “UP” or “DOWN”. No deducting when the employee works less than 40;

2. The salary has to be big enough so the employee does not fall below the minimum wage no matter how many hours they work;

3. You have to have a “clear understanding” with the employee that the salary covers all hours worked. So, PUT IT IN WRITING (that is me, not the DOL); and

4. The employee’s hours fluctuate from week to week.

Next time we go back to good old hourly employees and will talk about working at two or more rates.

The Interesting Problem of Salaried Non-Exempt Employees.

When I first started working, back in the “good old days” . . . Remember the “good old days”? Your grandparents and parents talked about the “good old days” all the time. Well, now I’m old and I talk about the “good old days” too. Only in my case the “good old days” were the 70’s and everyone knows there was nothing good about the 70’s. Disco, polyester, 27% interest rates. Bad old days, not good old days.

By the way, for you youngsters, if you want to see an excellent example of the 70s, disco and polyester jump on the internet and look for an image of the Bee Gees. Anyway, back in the 70’s when I got my first real job in a factory baking mushy white bread at a rate of 6,000 loafs per hour, I was under the impression that there were only two kinds of employees: hourly employees and salaried employees, and hourly employees got overtime and salaried employees did not. Of course, now that I’m older and wiser and I actually went to law school, I have learned that there is a big difference between a “salaried” employee and an “exempt” employee. And it is your exempt status that determines if you get overtime, not your salaried status.  In fact, you can have an employee who is “salaried” and who is still “non-exempt.”

So what is a salaried non-exempt employee? It is an employee that gets paid a salary but is still entitled to overtime. Wait a minute, how can that happen? Simple – to be exempt you have to be paid a salary AND pass a “duties test.” Have one but not the other, you get overtime. And, as you already know, there is a Regulation to determine exactly how that overtime is paid.

(a) Weekly salary. If the employee is employed solely on a weekly salary basis, the regular hourly rate of pay, on which time and a half must be paid, is computed by dividing the salary by the number of hours which the salary is intended to compensate. If an employee is hired at a salary of $350 and if it is understood that this salary is compensation for a regular workweek of 35 hours, the employee’s regular rate of pay is $350 divided by 35 hours, or $10 an hour, and when the employee works overtime the employee is entitled to receive $10 for each of the first 40 hours and $15 (one and one-half times $10) for each hour thereafter. If an employee is hired at a salary of $375 for a 40-hour week the regular rate is $9.38 an hour.

(b) Salary for periods other than workweek. Where the salary covers a period longer than a workweek, such as a month, it must be reduced to its workweek equivalent. A monthly salary is subject to translation to its equivalent weekly wage by multiplying by 12 (the number of months) and dividing by 52 (the number of weeks). A semimonthly salary is translated into its equivalent weekly wage by multiplying by 24 and dividing by 52. Once the weekly wage is arrived at, the regular hourly rate of pay will be calculated as indicated above. The regular rate of an employee who is paid a regular monthly salary of $1,560, or a regular semimonthly salary of $780 for 40 hours a week, is thus found to be $9 per hour. Under regulations of the Administrator, pursuant to the authority given to him in section 7(g)(3) of the Act, the parties may provide that the regular rates shall be determined by dividing the monthly salary by the number of working days in the month and then by the number of hours of the normal or regular workday. Of course, the resultant rate in such a case must not be less than the statutory minimum wage.

29 CFR § 778.113.

So the math here is really simple and we all already know, if we have been following along, that each workweek stands alone for overtime purposes, so that is no big surprise either. What I find interesting and what I’ll bet comes as a surprise to some of you is that the regular rate computation is based, not on a 40 hour week, but on the “number of hours which the salary is intended to compensate.”

So what does that mean and why do I find it interesting? It means that if, on the off chance you intend to hire a salaried non-exempt employee, you better be clear how many hours that salary is intended to cover. Put it in writing in an offer letter, and if the same policy applies to all salaried non-exempt employees, put it in the handbook too.

I know what you’re saying: “I want the salary to cover all the hours the employee works, no matter how many there are!” Don’t panic, we will talk about it next week.

Piece Work, Day Rates and the Regular Rate. Part 2.

So let’s finish up piece work and day rates and job rates. So what happens if the employee gets a piece rate with an hourly minimum? In that case, the employee gets paid on a piece work basis unless he does not make a specific hourly rate for the workweek. If he or she does not produce enough to make the minimum for the week, the employee gets a guaranteed minimum hourly rate. Often that is the minimum wage, to avoid problems, but it can be more. As the regulations point out, what that really means is that in any workweek where the employee does not hit the minimum, what he or she is really doing is getting paid by the hour.

(b) Piece rates with minimum hourly guarantee. In some cases an employee is hired on a piece-rate basis coupled with a minimum hourly guaranty. Where the total piece-rate earnings for the workweek fall short of the amount that would be earned for the total hours of work at the guaranteed rate, the employee is paid the difference. In such weeks the employee is in fact paid at an hourly rate and the minimum hourly guaranty is the regular rate in that week. In the example just given, if the employee was guaranteed $11 an hour for productive working time, the employee would be paid $506 (46 hours at $11) for the 46 hours of productive work (instead of the $491 earned at piece rates). In a week in which no waiting time was involved, the employee would be owed an additional $5.50 (half time) for each of the 6 overtime hours worked, to bring the total compensation up to $539 (46 hours at $11 plus 6 hours at $5.50 or 40 hours at $11 plus 6 hours at $16.50). If the employee is paid at a different rate for waiting time, the regular rate is the weighted average of the 2 hourly rates, as discussed in §778.115.

29 CFR § 778.111(b).

So if the employee does not hit the minimum and you pay them the guaranteed rate, it’s the same calculation as if they were being paid an hourly rate. And in those workweeks in which the employee does produce over the minimum? In those weeks you use the calculation we talked about last week. And this is a good time to remind you that the workweek stands alone and that you don’t get to average over two workweeks in this case either. Just like you don’t get to average hours worked over two workweeks. And NO, it does not matter that you use a two week pay period. For minimum wage and overtime purposes, each workweek stands alone.

And that brings up a second point about pieceworkers. They must be paid at least the minimum wage for every hour worked in the workweek. Even if they don’t produce enough parts to make the minimum wage. Now that does not mean that if the employee misses for one hour in the workweek and goes over for every other hour in the workweek you have to pay him extra for that one hour. What it means is, at the end of the workweek, when you are figuring out how much the employee produced and what that converts to on an hourly basis, it has to average at least the minimum wage per hour. And once again, that is for EACH WORKWEEK, not averaged over two of them.

So how about day rates and job rates? Pretty easy.

If the employee is paid a flat sum for a day’s work or for doing a particular job, without regard to the number of hours worked in the day or at the job, and if he receives no other form of compensation for services, his regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. He is then entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.

29 CFR § 778.112.

Simple right? Total the amount received for the day or job rates, divide by total hours worked to get the regular rate and pay half time for everything over 40.

Next time we will start to get into salaries for non-exempt employees and it will get a bit more complicated.

Piece Work, Day Rates and the Regular Rate. Part 1. More Math, Ugh!

We started last time with some discussion of calculating the regular rate for hourly workers and hourly workers who got a weekly production bonus. Well, I guess technically last time we talked about the new minimum wage in Michigan, but you know what I mean. This time I want to talk about piece work and day rates and job rates.

Let’s start with pieceworkers. Why, you ask? Because that is the order of the Regulations. Good enough? So what is a pieceworker? According to Wiki, “A peaceworker is an individual or member of an organization that undertakes to resolve violent conflict, prevent the rise of new violent conflicts, and rebuild societies damaged by war.” Wait, wait, wait. Wrong kind of piece. A pieceworker is someone who is paid based on the number of widgets they make and not on an hourly rate. Let’s start by getting something out of the way right now: Yes, these people are still entitled to overtime if they work over 40 hours in a workweek and, yes, you have to figure it out using the regular rate.

The Reg is a bit longer and here it is:

(a) Piece rates and supplements generally. When an employee is employed on a piece-rate basis, the regular hourly rate of pay is computed by adding together total earnings for the workweek from piece rates and all other sources (such as production bonuses) and any sums paid for waiting time or other hours worked (except statutory exclusions). This sum is then divided by the number of hours worked in the week for which such compensation was paid, to yield the pieceworker’s “regular rate” for that week. For overtime work the pieceworker is entitled to be paid, in addition to the total weekly earnings at this regular rate for all hours worked, a sum equivalent to one-half this regular rate of pay multiplied by the number of hours worked in excess of 40 in the week. (For an alternative method of complying with the overtime requirements of the Act as far as pieceworkers are concerned, see §778.418.) Only additional half-time pay is required in such cases where the employee has already received straight-time compensation at piece rates or by supplementary payments for all hours worked. Thus, for example, if the employee has worked 50 hours and has earned $491 at piece rates for 46 hours of productive work and in addition has been compensated at $8.00 an hour for 4 hours of waiting time, the total compensation, $523.00, must be divided by the total hours of work, 50, to arrive at the regular hourly rate of pay – $10.46. For the 10 hours of overtime the employee is entitled to additional compensation of $52.30 (10 hours at $5.23). For the week’s work the employee is thus entitled to a total of $575.30 (which is equivalent to 40 hours at $10.46 plus 10 overtime hours at $15.69).

29 CFR § 778.111(a).

Again, we have a pretty straightforward computation. Take the total piece rate and any rate for non-productive hours (like waiting time or going to meetings) and divide it by the number of hours the employee worked in the workweek. That gives you the regular rate. Then you divide that in half and that is the additional overtime rate. And don’t forget, where you have already compensated the employee at the straight time rate for any work done in the overtime hours, you only have to add on the half-time as overtime. Look at the example above (or call your labor lawyer) if that confuses you.

What if the employee works at multiple piece rates in a week? For example he gets $1.00 per part for one kind of part and $1.25 per part for a second kind of part? Well, you average, or you can agree to pay overtime at time and one-half of the regular rate for whatever part is being produced during the overtime hours. That’s what that reference to §778.418 in the Regulation is.

(a) Under section 7(g)(1), an employee who is paid on the basis of a piece rate for the work performed during non-overtime hours may agree with his employer in advance of the performance of the work that he shall be paid at a rate not less than one and one-half times this piece rate for each piece produced during the overtime hours. No additional overtime pay will be due under the Act provided that the general conditions discussed in §778.417 are met and:

(1) The piece rate is a bona fide rate;

(2) The overtime hours for which the overtime rate is paid qualify as overtime hours under section 7(e) (5), (6), or (7);

(3) The number of overtime hours for which such overtime piece rate is paid equals or exceeds the number of hours worked in excess of the applicable maximum hours standard for the particular workweek; and

(4) The compensation paid for the overtime hours is at least equal to pay at one and one-half times the applicable minimum rate for the total number of hours worked in excess of the applicable maximum hours standard.

(b) The piece rate will be regarded as bona fide if it is the rate actually paid for work performed during the non-overtime hours and if it is sufficient to yield at least the minimum wage per hour.

(c) If a pieceworker works at two or more kinds of work for which different straight time piece rates have been established, and if by agreement he is paid at a rate not less than one and one-half whichever straight time piece rate is applicable to the work performed during the overtime hours, such piece rate or rates must meet all the tests set forth in this section and the general tests set forth in §778.417 in order to satisfy the overtime requirements of the Act under section 7(g) (2).

29 CFR § 778.418.

Basically, what this Regulation says is that you can agree with the employee IN ADVANCE (and I would do it in writing), that you can pay overtime and the piece rate for the pieces being made when the overtime is worked instead of doing the average. You can do this when the employee is paid at two different hourly rates in a single workweek and we will talk about that when we get to it.

Let’s stop here and finish up piece work and day rates and job rates next time.

More Minimum in Michigan

Sometimes when I do this thing I just write news.  I don’t try to be funny or entertaining, I just write the news.  The two or three of you that read this thing regularly know that I do that when something happens and I am just not that sure of how to make it funny or interesting and I feel like I need to write something about it.  Today is that day.

I know you have all read or seen or heard this by now, but I’m going to take a second, and I mean a second, to write about it anyway.  Michigan has raised its minimum wage.  The federal minimum wage stays the same (it was lower than Michigan’s anyway), but the state minimum wage is going up.  On May 27 the Legislature passed and Governor Snyder signed legislation that will, over the next 4 years, raise Michigan’s minimum wage to $9.25 per hour.  In addition, tipped workers will also get a bump in their minimum up from the current $2.65 to $3.52 per hour – something the Legislature forgot to deal with the last time they changed the minimum.

Finally, the new bill will index the minimum wage to inflation starting in 2019.  Depending on the rate of inflation in a given year, the minimum may go up by as much as 3.5%.

So, Steve, you just said the federal minimum wage stays the same.  Which one do I have to pay if I have employees in Michigan?  You have to pay the higher one.  Want to read more about that, here you go.

Math, I Hate Math! Calculating the Regular Rate under the FLSA.

So last time we were talking about the regular rate and overtime and began to discuss how you go about calculating the regular rate.  And as I mentioned last week, the employer and the employee don’t get to decide what the regular rate is – no, it’s all about math.  It’s all about math? Great, math.  My mother wanted me to be an engineer – too much math.  I went to law school so I wouldn’t have to do math.  I can’t do math without a calculator.  Which, by the way, brings me to a complaint I have about my high school math teacher.  His name was Mr. TerHaar.  Don’t get me wrong, I liked Mr. TerHaar, he was a great guy, but he used to make us do long division without a calculator.  I can hear him now:  “You are not going to be able to carry a calculator with you everywhere you go in life.”  Boy, was he wrong.  The stinking thing is on my phone and I have never, and I mean NEVER, had to figure out the cosine of anything in my life.

Wow, that got away from me fast.  So back to the regular rate.  So how do we calculate this thing?  Let’s see what the Regulations say. First, what if you just pay the employee on an hourly basis, nothing else, just an hourly rate?

(a) Earnings at hourly rate exclusively. If the employee is employed solely on the basis of a single hourly rate, the hourly rate is the “regular rate.” For overtime hours of work the employee must be paid, in addition to the straight time hourly earnings, a sum determined by multiplying one-half the hourly rate by the number of hours worked in excess of 40 in the week. Thus a $12 hourly rate will bring, for an employee who works 46 hours, a total weekly wage of $588 (46 hours at $12 plus 6 at $6). In other words, the employee is entitled to be paid an amount equal to $12 an hour for 40 hours and $18 an hour for the 6 hours of overtime, or a total of $588.

29 CFR § 778.110(a).

Look at that, not only does the Regulation tell you how to calculate the regular rate, but it gives you an example.

So remember last time when I told you “Time and one-half of what, you ask?”  And then I said, “Well, that is simple enough, right?  It’s time and one-half of whatever the employee’s hourly rate is, right?” And then I told you that was wrong, but I said: “Well, not really wrong, but not really right either.”  This Regulation is why it’s not really right, but not really wrong to say that the regular rate is whatever hourly rate you pay the employee.  You see, the regular rate can be more than just the employee’s hourly rate when the employee gets other kinds of pay that are not just his hourly rate.  But when the ONLY THING you pay the employee is an hourly rate, AND NOTHING ELSE, then that hourly rate is going to be the regular rate.  And it’s a straight up mathematical computation to determine what the overtime rate is.  Even I can do that.

But how do you do it when the hourly rate is not the only thing you pay the employee?  Or when the employee is not paid on an hourly rate at all?  Well, that is what we are going to talk about over the next couple of posts.  So let’s get to it.

What if you pay an hourly rate but you also pay a production bonus?  Produce X number of parts, or hit a goal for the week, or deal with X number of customer issues and we will pay you a bonus.

Damn, here comes the math.  But that’s ok, there is a Reg for that too.  But you knew that or we wouldn’t be talking about it, now would we?

(b) Hourly rate and bonus. If the employee receives, in addition to the earnings computed at the $12 hourly rate, a production bonus of $46 for the week, the regular hourly rate of pay is $13 an hour (46 hours at $12 yields $552; the addition of the $46 bonus makes a total of $598; this total divided by 46 hours yields a regular rate of $13). The employee is then entitled to be paid a total wage of $637 for 46 hours (46 hours at $13 plus 6 hours at $6.50, or 40 hours at $13 plus 6 hours at $19.50).

29 CFR § 778.110(b).

Ok, that is pretty easy to figure out too, right?  We have thrown some more complicated division into the equation, but it’s still a pretty straight up mathematical calculation.  But part of the reason it is easy is because the production bonus in our example is paid for a single workweek.  What if the production bonus is paid once a month or once a quarter?  Well, then you have to allocate the bonus and the calculation becomes a bit more complex and there is a whole set of Regulations on that, but we are not going to deal with that today.  We will do that when we come to those Regulations.  And that, ladies and gentlemen, is what we call a teaser.

I like this short post thing.  Next time, Pieceworkers.

Steve.

A slightly irregular problem. The Regular Rate and Overtime under the FLSA

Last week we talked about the workweek as the basis for computing overtime.  Over 40 in a workweek, you pay overtime at a rate of time and one-half.  Time and one-half of what, you ask?  Well, that is simple enough, right?  It’s time and one-half of whatever the employee’s hourly rate is, right?  WRONG, my friend.

Well, not really wrong, but not really right either.  In fact, what you are supposed to pay overtime based on is the “regular rate.”  Today we are going to start talking about what the regular rate is.

So here is how the Regulations start this concept off:

The general overtime pay standard in section 7(a) requires that overtime must be compensated at a rate not less than one and one-half times the regular rate at which the employee is actually employed. The regular rate of pay at which the employee is employed may in no event be less than the statutory minimum. . . .  If the employee’s regular rate of pay is higher than the statutory minimum, his overtime compensation must be computed at a rate not less than one and one-half times such higher rate. . . .

29 CFR § 778.107.  The ellipses you see in the quote are just some exceptions that we are not going to talk about today.  If you want to know what those exceptions are, go look at the Regulations.

So what is the regular rate?  Well, first of all, the Regulations make it clear that it is not up to the employer and the employee to decide what the regular rate is.

The Regs say:

The ‘regular rate’ of pay under the Act cannot be left to a declaration by the parties as to what is to be treated as the regular rate for an employee; it must be drawn from what happens under the employment contract (Bay Ridge Operating Co. v. Aaron, 334 U.S. 446). The Supreme Court has described it as the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed—an ‘actual fact’ (Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419). Section 7(e) of the Act requires inclusion in the ‘regular rate’ of ‘all remuneration for employment paid to, or on behalf of, the employee’ except payments specifically excluded by paragraphs (1) through (7) of that subsection. (These seven types of payments, which are set forth in §778.200 and discussed in §§778.201 through 778.224, are hereafter referred to as ‘statutory exclusions.’) As stated by the Supreme Court in the Youngerman-Reynolds case cited above: ‘Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary ‘regular rate’ in the wage contracts.’

29 CFR § 778.108.

OK, so it’s about math.  What else is it?  Well, it’s an hourly rate.  No matter how you pay a non-exempt employee, in order to pay overtime properly you have to break the pay down to an hourly rate to figure the correct amount of overtime.  More math, man!

The ‘regular rate’ under the Act is a rate per hour. The Act does not require employers to compensate employees on an hourly rate basis; their earnings may be determined on a piece-rate, salary, commission, or other basis, but in such case the overtime compensation due to employees must be computed on the basis of the hourly rate derived therefrom and, therefore, it is necessary to compute the regular hourly rate of such employees during each workweek, with certain statutory exceptions discussed in §§778.400 through 778.421. The regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid. The following sections give some examples of the proper method of determining the regular rate of pay in particular instances: (The maximum hours standard used in these examples is 40 hours in a workweek).

29 CFR § 778.109.

I think that is enough for now.  Next week we will talk about how you compute some of this.

Overtime and the Workweek. A short but important post.

Let me start this week with an editorial comment.  This post is shorter than the last couple have been.  Only about 850 words.  The first draft was like 2200 words.  In fact, this post and the one before were combined into a single post.  Too long, right?  So I cut them in half and I’m working really hard at keeping them shorter.  Two reasons for that.  One, easier for you to read.  Who wants to read 2000 words on the FLSA in a single sitting?  Second, I’m really busy and this is hard work.  So I’m going to try to go back to shorter posts, say 800 or 900 words.  Hope that is OK with the three of you reading this thing.

So, what is the workweek we spoke of last time?  First and foremost, the workweek is the basis for overtime payments under the Act.

If in any workweek an employee is covered by the Act and is not exempt from its overtime pay requirements, the employer must total all the hours worked by the employee for him in that workweek (even though two or more unrelated job assignments may have been performed), and pay overtime compensation for each hour worked in excess of the maximum hours applicable under section 7(a) of the Act.  In the case of an employee employed jointly by two or more employers (see part 791 of this chapter), all hours worked by the employee for such employers during the workweek must be totaled in determining the number of hours to be compensated in accordance with section 7(a).  The principles for determining what hours are hours worked within the meaning of the Act are discussed in part 785 of this chapter.

29 CFR § 103.

In addition, it is a single workweek that determines overtime payments.  No averaging over workweeks.  I can hear you now.  “I have an employee who worked 30 hours last week and 50 hours this week and that equals 80 hours over the two weeks so I don’t have to pay any overtime, right?”  Wrong.  Each workweek stands alone (with an exception, a very narrow exception, for certain health care occupations).  29 CFR § 104.’  “So, come on, what is a “workweek?’”

An employee’s workweek is a fixed and regularly recurring period of 168 hours—seven consecutive 24-hour periods. It need not coincide with the calendar week but may begin on any day and at any hour of the day. For purposes of computing pay due under the Fair Labor Standards Act, a single workweek may be established for a plant or other establishment as a whole or different workweeks may be established for different employees or groups of employees.

* * *

29 CFR § 778.105 (emphasis added).

Let me go over that one more time for you.  A FIXED AND REGULARLY RECURRING PERIOD OF 168 HOURS – SEVEN CONSECUTIVE 24-HOUR PERIODS.

Got that?  So, my handbook says the “normal workweek is Monday from 8 a.m. to Friday at 5 p.m.”  Good enough?  NO.  OK, how about “the workweek starts with the first shift on Sunday evening and ends with the last shift on Saturday night.”  Good enough?  NO.  Neither of these meet the definition.  Here is one that does.  “For purposes of computing overtime, the workweek begins at 11:00 p.m. Saturday and ends at 10:59 p.m. the following Saturday.”   That meets the definition.  Pick whatever time or day you want to start it but that is the way the workweek for overtime should be expressed.  I don’t care when your office is open or when your first shift starts for the week, you have to follow the definition in the Regs.

So, once you set the workweek, can you change it?  Yes, you can, but only within limits.  29 CFR § 778.105 goes on to state:

Once the beginning time of an employee’s workweek is established, it remains fixed regardless of the schedule of hours worked by him. The beginning of the workweek may be changed if the change is intended to be permanent and is not designed to evade the overtime requirements of the Act. The proper method of computing overtime pay in a period in which a change in the time of commencement of the workweek is made, is discussed in §§778.301 and 778.302.

Oh, and one last thing, when do I have to pay overtime?  Well, you pay it on the regular pay date for the workweek in which it is earned.

There is no requirement in the Act that overtime compensation be paid weekly. The general rule is that overtime compensation earned in a particular workweek must be paid on the regular pay day for the period in which such workweek ends. When the correct amount of overtime compensation cannot be determined until some time after the regular pay period, however, the requirements of the Act will be satisfied if the employer pays the excess overtime compensation as soon after the regular pay period as is practicable. Payment may not be delayed for a period longer than is reasonably necessary for the employer to compute and arrange for payment of the amount due and in no event may payment be delayed beyond the next payday after such computation can be made. Where retroactive wage increases are made, retroactive overtime compensation is due at the time the increase is paid, as discussed in §778.303. For a discussion of overtime payments due because of increases by way of bonuses, see §778.209.

29 CFR § 778.106.

And by the way, the word that is really important here is “CANNOT.”  You don’t get to wait to pay overtime just because you want to, or it is inconvenient, or for any other reason than you can’t actually figure it out because you don’t know how much it is.  And that is the basic rule.

Steve.

Overtime, an Introduction

We started talking about overtime, at least for just a second, in the very first substantive post in this series.  Remember:

Section 7 of the FLSA, 29 USC §207 says:

(1) Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.  The amount of money an employee should receive cannot be determined without knowing the number of hours worked. . . .

And again, like it has over and over during this series, this general rule raises a whole bunch of questions.  We have already talked about the employer and the employee and employ and that stuff.  Now we are going to talk about the workweek and the regular rate which are the basis for how you have to pay overtime.  Some preliminary stuff first.  The first 7 regulations under this part deal with general stuff and interpretations and the interrelationship between the FLSA and some other laws, and we are only going to talk one of these regulations.  That is 29 CFR § 778.5 which is entitled “Relation to other laws generally.”  This section says:

Various Federal, State, and local laws require the payment of minimum hourly, daily or weekly wages different from the minimum set forth in the Fair Labor Standards Act, and the payment of overtime compensation computed on bases different from those set forth in the Fair Labor Standards Act.  Where such legislation is applicable and does not contravene the requirements of the Fair Labor Standards Act, nothing in the act, the regulations or the interpretations announced by the Administrator should be taken to override or nullify the provisions of these laws.  Compliance with other applicable legislation does not excuse noncompliance with the Fair Labor Standards Act.  Where a higher minimum wage than that set in the Fair Labor Standards Act is applicable to an employee by virtue of such other legislation, the regular rate of the employee, as the term is used in the Fair Labor Standards Act, cannot be lower than such applicable minimum, for the words “regular rate at which he is employed” as used in section 7 must be construed to mean the regular rate at which he is lawfully employed.

And there are some important concepts in this little section of the regulations.  One, we have already talked about when we were discussing the minimum wage.  If there is a state law that provides for a higher minimum wage, you pay the higher minimum wage.  Same thing applies when we talk about overtime.  You see, the basis for paying overtime is the employee’s “Regular Rate.”  And as you can see above:

Where a higher minimum wage than that set in the Fair Labor Standards Act is applicable to an employee by virtue of such other legislation, the regular rate of the employee, as the term is used in the Fair Labor Standards Act, cannot be lower than such applicable minimum, for the words “regular rate at which he is employed” as used in section 7 must be construed to mean the regular rate at which he is lawfully employed.

Id. (emphasis added).

So don’t forget as we go along, and I am reasonably sure I have said this in other posts, whenever there is a state law that provides the employees with more protection than the federal law does, you apply the state law to that particular issue.  Our friends in California, this is especially important for you!

Now let’s talk a bit about the maximum hour provisions.  According to 29 CFR § 100:

Section 7(a) of the Act deals with maximum hours and overtime compensation for employees who are within the general coverage of the Act and are not specifically exempt from its overtime pay requirements.  It prescribes the maximum weekly hours of work permitted for the employment of such employees in any workweek without extra compensation for overtime, and a general overtime rate of pay not less than one and one-half times the employee’s regular rate which the employee must receive for all hours worked in any workweek in excess of the applicable maximum hours.  The employment by an employer of an employee in any work subject to the Act in any workweek brings these provisions into operation.  The employer is prohibited from employing the employee in excess of the prescribed maximum hours in such workweek without paying him the required extra compensation for the overtime hours worked at a rate meeting the statutory requirement.

 Id. (emphasis added).

So what is the prescribed maximum?  Well, section 7 of the Act above says 40 hours in a workweek and so do the regs.  29 CFR § 101 says:

As a general standard, section 7(a) of the Act provides 40 hours as the maximum number that an employee subject to its provisions may work for an employer in any workweek without receiving additional compensation at not less than the statutory rate for overtime.  Hours worked in excess of the statutory maximum in any workweek are overtime hours under the statute; a workweek no longer than the prescribed maximum is a non-overtime workweek under the Act, to which the pay requirements of section 6 (minimum wage and equal pay) but not those of section 7(a) are applicable.

So let’s get one thing out of the way right now.  Nothing in the Act sets a maximum on the number of hours you can work your employees in a workweek.  As long as the employee is 18 years old or older, work them 100 hours in the week if you want.  But, unless they are exempt under one of the exemptions we will talk about in the coming weeks, you have to pay them overtime.  And in this case overtime is time and one-half of the regular rate.  Not double time, time and one-half.  Now, and I said this when we started today and I said it when we were talking about breaks and I’m going to say it again, LOOK OUT FOR STATE LAWS, they may provide more protection.  And, go ahead and work your employees this hard and see how long they stay your employees.  I’m just sayin’.  And there is a reg that even says that:

Since there is no absolute limitation in the Act (apart from the child labor provisions and regulations thereunder) on the number of hours that an employee may work in any workweek, he may work as many hours a week as he and his employer see fit, so long as the required overtime compensation is paid him for hours worked in excess of the maximum workweek prescribed by section 7(a). The Act does not generally require, however, that an employee be paid overtime compensation for hours in excess of eight per day, or for work on Saturdays, Sundays, holidays or regular days of rest.  If no more than the maximum number of hours prescribed in the Act are actually worked in the workweek, overtime compensation pursuant to section 7(a) need not be paid.  Nothing in the Act, however, will relieve an employer of any obligation he may have assumed by contract or of any obligation imposed by other Federal or State law to limit overtime hours of work or to pay premium rates for work in excess of a daily standard or for work on Saturdays, Sundays, holidays, or other periods outside of or in excess of the normal or regular workweek or workday.  (The effect of making such payments is discussed in §§778.201 through 778.207 and 778.219.)

29 CFR § 778.102.

And doesn’t that make some important points:  Under the FLSA overtime is based on 40 hours in the workweek.  Not 8 hours in a day or Saturday or Sunday work or working on holidays.  If you do any of those, good for you, but it is extra under the FLSA.  You get to take credit for it, but it is extra. (don’t forget state law . . . . again.)

Next week, we talk about the workweek.

 

Dollar Dollar bills y’all. Wage Payments under the FLSA.

So the first thing you should notice when we get into this is that the numbers of the regulations have changed.  We are now in Part 531, or the regs entitled “Wage Payments Under the Fair Labor Standards Act of 1938.”  What?  Do we really need a whole “Part” to talk about wage payments?  Pay the wage, what’s the issue?  And generally, you are right, for most employers there is no issue.  In fact, the regs say:

(a) Standing alone, sections 6 and 7 of the Act require payments of the prescribed wages, including overtime compensation, in cash or negotiable instrument payable at par.  Section 3(m) provides, however, for the inclusion in the ‘wage’ paid to any employee, under the conditions which it prescribes of the ‘reasonable cost,’ or ‘fair value’ as determined by the Secretary, of furnishing such employee with board, lodging, or other facilities.  In addition, section 3(m) provides that a tipped employee’s wages may consist in part of tips. It is section 3(m) which permits and governs the payment of wages in other than cash.

29 CFR §531.27.

Generally, we are going to pay employees in cash, but that hasn’t always been the case.  In fact, some companies used to pay in something called “scrip.”  It was essentially Monopoly money, but don’t worry, the company store will take it.  And that isn’t just ripe for abuse is it?  In fact, the abuse used to be so bad that people used to write songs about it.  Anybody remember the song 16 TonsA guy named Tennessee Ernie Ford sang it.   Don’t remember him?  Johnny Cash sang it too.  And the regulations recognize that potential for abuse and prohibit it:  “Scrip, tokens, credit cards, ‘dope checks,’ coupons, and similar devices are not proper mediums of payment under the Act.  They are neither cash nor ‘other facilities’ within the meaning of section 3(m).”  29 CFR § 531.34.  The regs also specifically recognize state law that prohibits these kinds of payments.

Various Federal, State, and local legislation requires the payment of wages in cash; prohibits or regulates the issuance of scrip, tokens, credit cards, ‘dope checks’ or coupons; prevents or restricts payment of wages in services or facilities; controls company stores and commissaries; outlaws ‘kickbacks’; restrains assignment and garnishment of wages; and generally governs the calculation of wages and the frequency and manner of paying them. Where such legislation is applicable and does not contravene the requirements of the Act, nothing in the Act, the regulations, or the interpretations announced by the Administrator should be taken to override or nullify the provisions of these laws.

29 CFR §531.26.

As just one example, the Michigan Payment of Wages Act, (remember, I’m in Michigan) says:

Sec. 6.

(1) An employer or agent of an employer may pay wages to an employee by any of the following methods that protect the earnings of the employee from garnishment as required by 15 USC 1673 to the same extent they would be exempt while held by the employer:

(a) Payment in United States currency.

(b) Payment by a negotiable check or draft payable on presentation at a financial institution or other established place of business without discount in United States currency.

(c) Direct deposit or electronic transfer to the employee’s account at a financial institution.

(d) Issuing a payroll debit card that complies with subsection (6).

MCL § 408.476.

One thing before we go any further.  First, the DOL’s Field Operations Handbook recognizes and allows direct deposit.  But, there are very strict rules at both the federal and state level regarding direct deposit, so talk to an EMPLOYMENT LAWYER before you do this.  And don’t rely on your payroll company, they are not lawyers.

But no matter how you pay the wage, wages are not considered paid unless they have been paid free and clear.

Whether in cash or in facilities, ‘wages’ cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or ‘free and clear.’  The wage requirements of the Act will not be met where the employee ‘kicks-back’ directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.  This is true whether the ‘kick-back’ is made in cash or in other than cash.  For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer’s particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act.  See also in this connection, §531.32(c).

29 CFR §531.35.

So, an employer can take credit for the “‘reasonable cost,’ or ‘fair value’ as determined by the Secretary, of furnishing the employee with board, lodging, or other facilities.”  How do you do that?  We are not going to get into it.  It is going to have to be enough that you know that you need approval to do this and that there are regulations that help define “reasonable cost” and “fair value” and that is it.

And then there are tips.  The other Section 3(m) exception to payments in cash are tips.  First, who is a tipped employee?

(b) ‘Tipped employee’ is defined in section 3(t) of the Act as follows: Tipped employee means any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.

29 CFR § 532.50.

Then, what is a tip?

A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him.  It is to be distinguished from payment of a charge, if any, made for the service. . . .

29 CFR § 531.52.

So the tip credit allows an employer to pay a tipped employee a lower cash wage that is supplemented by tips to equal the applicable minimum wage.  DON’T FORGET STATE LAW MINIMUM WAGES WHICH MAY BE HIGHER.  In order to take the tip credit, employers have to meet some requirements and there are some prohibitions about what the employer can do with the tips.

The law forbids any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer.   A tip is the sole property of the tipped employee.

Where an employer does not strictly observe the tip credit provisions of the Act, no tip credit may be claimed and the employees are entitled to receive the full cash minimum wage in addition to retaining tips they may/should have received.

The regs specifically state:

A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him.  It is to be distinguished from payment of a charge, if any, made for the service.  Whether a tip is to be given, and its amount, are matters determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity.  Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA.  The employer is prohibited from using an employee’s tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool.  Only tips actually received by an employee as money belonging to the employee may be counted in determining whether the person is a ‘tipped employee’ within the meaning of the Act and in applying the provisions of section 3(m) which govern wage credits for tips.

29 CFR 531.52.

And what exactly is tip pooling?  Well . . .

[w]here employees practice tip splitting, as where waiters give a portion of their tips to the busboys, both the amounts retained by the waiters and those given the busboys are considered tips of the individuals who retain them, in applying the provisions of section 3(m) and 3(t).  Similarly, where an accounting is made to an employer for his information only or in furtherance of a pooling arrangement whereby the employer redistributes the tips to the employees upon some basis to which they have mutually agreed among themselves, the amounts received and retained by each individual as his own are counted as his tips for purposes of the Act.  Section 3(m) does not impose a maximum contribution percentage on valid mandatory tip pools, which can only include those employees who customarily and regularly receive tips. However, an employer must notify its employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each employee ultimately receives, and may not retain any of the employees’ tips for any other purpose.

As you can see, the reg does not specify how a tip pool is to be divided, as long as each employee is informed of the arrangement and the employer does not “retain any of the employees’ tips . . . .”

Next week we start overtime.

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