The regular rate and commissions. Part 3.

Remember last week we had another cliff hanger and I left you with trying to figure out how you compute the regular rate for an employee who is paid commissions that can’t be allocated to a specific workweek. All right, who read ahead? Come on admit it, this was just so exciting you couldn’t wait to find out, now could you? Admit it! Well if you didn’t read ahead, here is what the Regulation says:

If it is not possible or practicable to allocate the commission among the workweeks of the period in proportion to the amount of commission actually earned or reasonably presumed to be earned each week, some other reasonable and equitable method must be adopted. The following methods may be used:

(a) Allocation of equal amounts to each week. Assume that the employee earned an equal amount of commission in each week of the commission computation period and compute any additional overtime compensation due on this amount. This may be done as follows:

(1) For a commission computation period of 1 month, multiply the commission payment by 12 and divide by 52 to get the amount of commission allocable to a single week. If there is a semimonthly computation period, multiply the commission payment by 24 and divide by 52 to get each week’s commission. For a commission computation period of a specific number of workweeks, such as every 4 weeks (as distinguished from every month) divide the total amount of commission by the number of weeks for which it represents additional compensation to get the amount of commission allocable to each week.

(2) Once the amount of commission allocable to a workweek has been ascertained for each week in which overtime was worked, the commission for that week is divided by the total number of hours worked in that week, to get the increase in the hourly rate. Additional overtime due is computed by multiplying one-half of this figure by the number of overtime hours worked in the week. A shorter method of obtaining the amount of additional overtime compensation due is to multiply the amount of commission allocable to the week by the decimal equivalent of the fraction

Overtime hours

——————–

Total hours × 2

A coefficient table (WH-134) has been prepared which contains the appropriate decimals for computing the extra half-time due.

Examples: (i) If there is a monthly commission payment of $416, the amount of commission allocable to a single week is $96 ($416×12=$4,992÷52=$96). In a week in which an employee who is due overtime compensation after 40 hours works 48 hours, dividing $96 by 48 gives the increase to the regular rate of $2. Multiplying one-half of this figure by 8 overtime hours gives the additional overtime pay due of $8. The $96 may also be multiplied by 0.083 (the appropriate decimal shown on the coefficient table) to get the additional overtime pay due of $8.

(ii) An employee received $384 in commissions for a 4-week period. Dividing this by 4 gives him a weekly increase of $96. Assume that he is due overtime compensation after 40 hours and that in the 4-week period he worked 44, 40, 44 and 48 hours. He would be due additional compensation of $4.36 for the first and third week ($96÷44=$2.18÷2=$1.09×4 overtime hours=$4.36), no extra compensation for the second week during which no overtime hours were worked, and $8 for the fourth week, computed in the same manner as weeks one and three. The additional overtime pay due may also be computed by multiplying the amount of the weekly increase by the appropriate decimal on the coefficient table, for each week in which overtime was worked.

(b) Allocation of equal amounts to each hour worked. Sometimes, there are facts which make it inappropriate to assume equal commission earnings for each workweek. For example, the number of hours worked each week may vary significantly. In such cases, rather than following the method outlined in paragraph (a) of this section, it is reasonable to assume that the employee earned an equal amount of commission in each hour that he worked during the commission computation period. The amount of the commission payment should be divided by the number of hours worked in the period in order to determine the amount of the increase in the regular rate allocable to the commission payment. One-half of this figure should be multiplied by the number of statutory overtime hours worked by the employee in the overtime workweeks of the commission computation period, to get the amount of additional overtime compensation due for this period.

Example: An employee received commissions of $192 for a commission computation period of 96 hours, including 16 overtime hours (i.e., two workweeks of 48 hours each). Dividing the $192 by 96 gives a $2 increase in the hourly rate. If the employee is entitled to overtime after 40 hours in a workweek, he is due an additional $16 for the commission computation period, representing an additional $1 for each of the 16 overtime hours.

29 CFR § 778.120.

That Regulation is pretty self-explanatory, it is also very long and very boring, so I’m just not going to get into it any further. If you have questions, call your labor lawyer which you should do every week anyway.

The regular rate and commissions. Part 2.

You know, I really have to start coming up with better titles for these posts. I’m getting boring beyond belief. Could be because I have spent the better part of a year talking about the FLSA and Regulations and every time I try to do something even a bit funny I get knocked down by someone in . . . . well, let’s not go there.

Last week we talked about the really simple and admittedly very rare situation where an employee gets paid on an hourly basis with weekly commissions. But what about the less simple and more common situation where a non-exempt employee gets paid commission once a month, or once a quarter? Then what?

 If the calculation and payment of the commission cannot be completed until sometime after the regular pay day for the workweek, the employer may disregard the commission in computing the regular hourly rate until the amount of commission can be ascertained. Until that is done he may pay compensation for overtime at a rate not less than one and one-half times the hourly rate paid the employee, exclusive of the commission. When the commission can be computed and paid, additional overtime compensation due by reason of the inclusion of the commission in the employee’s regular rate must also be paid. To compute this additional overtime compensation, it is necessary, as a general rule, that the commission be apportioned back over the workweeks of the period during which it was earned. The employee must then receive additional overtime compensation for each week during the period in which he worked in excess of the applicable maximum hours standard. The additional compensation for that workweek must be not less than one-half of the increase in the hourly rate of pay attributable to the commission for that week multiplied by the number of hours worked in excess of the applicable maximum hours standard in that workweek.

29 CFR § 778.119. So what you are doing here is getting the commission total on a, say, monthly or quarterly basis. Figure out how much of the commission was earned in each week of whatever period is covered, then you recalculate the regular rate for each week and pay the employee an additional amount equal to one-half of the increase in the regular rate for all of the overtime hours worked in that week. Not that bad, right? But you can only use this method when you can actually allocate the commission to a workweek in which it was earned.

So what do you do when you can’t apportion the commission to a specific workweek? Seems like in a lot of industries that would be the more common situation. Well, that is a really long Regulation and it even has examples, so we will do it next week.

The regular rate and commissions. Part 1.

What is a commission? We all know what a commission is, right? According to Webster, a commission is “a fee paid to an agent or employee for transacting a piece of business or performing a service; especially: a percentage of the money received from a total paid to the agent responsible for the business.” http://www.merriam-webster.com/dictionary/commission

Wiki defines it as “a form of payment to an agent for services rendered.” http://en.wikipedia.org/wiki/Commission.

So now that we know what a commission is, the next logical question is, can you even pay a non-exempt employee a commission? Of course you can, it may not happen much, but you can. You just have to make sure you follow the other rules: That the employee makes at least the minimum wage and that the employee gets time and one-half of the regular rate for all hours worked over 40 in the workweek. And that is what we have been dealing with since the beginning of the year. Right? Right. So how do you determine what the regular rate is when you pay a non-exempt employee a commission? Well, like a bunch of the other rules we have been talking about, there is a general rule and then a couple of more specific rules that tell you exactly how to do that.

Here is the general rule:

Commissions (whether based on a percentage of total sales or of sales in excess of a specified amount, or on some other formula) are payments for hours worked and must be included in the regular rate. This is true regardless of whether the commission is the sole source of the employee’s compensation or is paid in addition to a guaranteed salary or hourly rate, or on some other basis, and regardless of the method, frequency, or regularity of computing, allocating and paying the commission. It does not matter whether the commission earnings are computed daily, weekly, biweekly, semimonthly, monthly, or at some other interval. The fact that the commission is paid on a basis other than weekly, and that payment is delayed for a time past the employee’s normal pay day or pay period, does not excuse the employer from including this payment in the employee’s regular rate.

29 CFR § 778.117. So it is simple, right? You have to include commissions in the total compensation earned by the employee and then you just do some division and figure out what the regular rate is. And if the commissions are earned on a weekly basis, it is really that simple.

When the commission is paid on a weekly basis, it is added to the employee’s other earnings for that workweek (except overtime premiums and other payments excluded as provided in section 7(e) of the Act), and the total is divided by the total number of hours worked in the workweek to obtain the employee’s regular hourly rate for the particular workweek. The employee must then be paid extra compensation at one-half of that rate for each hour worked in excess of the applicable maximum hours standard.

29 CFR §778.118. So if the employee makes $10 per hour and works 50 hours he gets $500 in hourly wages and he makes an additional 5% on all sales for that week, and if he sells $1,000 worth of widgets, he makes an additional $50 in commissions. So the total is $500 plus $50 which is $550 divided by 50 hours or a regular rate of $11 per hour. Then he gets half-time or an additional $5.50 for all the overtime hours. (Remember, he has already been paid the straight time rate for those hours). (See how I made that math really easy. . . . know why? Cause I hate math). Now that is really simple, and it can’t possibly be that simple, can it? Sure it can, if you pay commissions on a weekly basis. And how many employers do that? Not many. So next week we talk about deferred commissions.

Does anybody really do this anymore? Non-Cash Payments and the regular rate.

Back in April we did a post on payments under the FLSA and I put a link in to a song called 16 Tons. It is an old song about an employee who can’t quit his job because he owes the company store more than he makes. Hard to believe isn’t it? That you could work your tail off and end up owing the company more than they owe you. But back in the olden days, and trust me, given my age, when I say olden days I mean olden days, some companies provided more than just pay to their employees. For those of you who are not into history or who are a bit younger, Wiki defines company town as:

A company town is a place where, at least initially, practically all stores and buildings are owned by the one joint-stock company that has a geographically-linked business need and so provides employment and infrastructure (housing, stores, transportation, sewage and water) to support the effort. Typically, such towns are founded in a remote location, so that residents cannot easily commute or shop elsewhere, . . . .”

See http://en.wikipedia.org/wiki/Company_town

The Encyclopedia of Chicago states:

The most ambitious and controversial project of company housing was conceived by railroad car magnate George M. Pullman, who in 1880 founded the town of Pullman on Chicago’s southern suburban fringe. As part of Pullman’s paternalistic social vision, his housing was designed to foster in workers the virtues of industriousness, temperance, thrift, and cleanliness. All dwellings, from the bachelor apartments to the free-standing houses, featured running water, gas, and garbage disposals. The Pullman companies maintained total control over housing: they owned the land and buildings, set the rents, screened (and evicted) tenants.

See http://www.encyclopedia.chicagohistory.org/pages/324.html

So why on earth am I telling you all of this. Because I like history. And because there is actually a regulation that deals with this sort of thing.

Where payments are made to employees in the form of goods or facilities which are regarded as part of wages, the reasonable cost to the employer or the fair value of such goods or of furnishing such facilities must be included in the regular rate. (See part 531 of this chapter for a discussion as to the inclusion of goods and facilities in wages and the method of determining reasonable cost.) Where, for example, an employer furnishes lodging to his employees in addition to cash wages the reasonable cost or the fair value of the lodging (per week) must be added to the cash wages before the regular rate is determined.

29 CFR § 778.116.

So, if you provide housing to your non-exempt employees as part of their compensation, you have to include the fair market value of that housing when you are calculating the regular rate for that employee and figuring the resulting overtime rate. And that is that. Oh by the way, if you are thinking nobody provides housing to workers anymore, think again. In fact it is so common for migrant farm workers that many states, including Michigan, have licensing requirements for providing housing. See http://michigan.gov/mdard/0,4610,7-125-1569_45168—,00.html

Next week we start talking about commissions and the regular rate.

That’s not my job! Oh yes it is. Working at two or more rates. Part 2.

Last time we talked about the general rule for computing the regular rate to pay overtime for an hourly employee that works at more than one rate in a single workweek. You will recall that the general rule is you do math . . . . and you know how much I love to do math . . . . and compute the weighted average hourly rate. But we also talked about the “basic rate” concept and what a pain that was.

What about the other exceptions listed in the general rule? Are they this impossible too? Well, no, they are not. And really we are talking about one basic exception, the one we already talked about when we did the post on pieceworkers. Remember? Find it here. So what is the deal?

Sections 7(g) (1) and (2) of the Act provide:

(g) No employer shall be deemed to have violated subsection (a) by employing any employee for a workweek in excess of the maximum workweek applicable to such employee under such subsection if, pursuant to an agreement or understanding arrived at between the employer and the employee before performance of the work, the amount paid to the employee for the number of hours worked by him in such workweek in excess of the maximum workweek applicable to such employee under such subsection:

*   *   *   *   *

(2) In the case of an employee performing two or more kinds of work for which different hourly or piece rates have been established, is computed at rates not less than one and one-half times such bona fide rates applicable to the same work when performed during nonovertime hours;

*   *   *   *   *

29 CFR § 778.415.

So, like we said with pieceworkers, 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 hourly rate for the job being done when the overtime is worked instead of doing the average. Now, there are some rules that make sure that you are not taking advantage of the employee. For example, you can’t agree on a rate lower than the minimum wage (29 CFR § 778.417) and:

 (a) Under section 7(g)(2) an employee who performs two or more different kinds of work, for which different straight time hourly rates are established, may agree with his employer in advance of the performance of the work that he will be paid during overtime hours at a rate not less than one and one-half times the hourly nonovertime rate established for the type of work he is performing during such overtime hours. No additional overtime pay will be due under the act provided that the general requirements set forth in §778.417 are met and;

(1) The hourly rate upon which the overtime rate is based 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); and

(3) The number of overtime hours for which the overtime rate is paid equals or exceeds the number of hours worked in excess of the applicable maximum hours standard.

(b) An hourly rate will be regarded as a bona fide rate for a particular kind of work if it is equal to or greater than the applicable minimum rate therefor and if it is the rate actually paid for such work when performed during nonovertime hours.

29 CFR § 778.419. There is also a Regulation, 29 CFR § 778.420, that deals with employees who work on a combined hourly and piece rate that says about the same thing: You can agree with the employee.

And one more thing before we leave this short Regulation that turned into a somewhat longer post: If you pay daily overtime or Saturday and Sunday overtime pursuant to a state law or a union contract, you get credit for that toward your obligations to pay weekly overtime.

Where overtime rates are paid pursuant to statute or contract for hours in excess of 8 in a day, or in excess of the applicable maximum hours standard, or in excess of the employees’ normal working hours or regular working hours (as under section 7(e)(5) or for work on “special days” (as under section 7(e)(6), or pursuant to an applicable employment agreement for work outside of the hours established in good faith by the agreement as the basic, normal, or regular workday (not exceeding 8 hours) or workweek (not exceeding the applicable maximum hours standard) (under section 7(e) (7), the requirements of section 7(g) (1) and 7(g)(2) will be met if the number of such hours during which overtime rates were paid equals or exceeds the number of hours worked in excess of the applicable maximum hours standard for the particular workweek. It is not necessary to determine whether the total amount of compensation paid for such hours equals or exceeds the amount of compensation which would be due at the applicable rates for work performed during the hours after the applicable maximum in any workweek.

29 CFR § 778.421.

Next time, we will talk about payments other than cash and computing overtime.

That’s not my job! Oh yes it is. Working at two or more rates. Part 1.

Back in the day, when I was working in a union shop working my way through undergrad, I was a summer replacement in the bakery. I happened to be able to do most of the jobs in the plant, so after a while I was put in a position where I switched from job to job, often in the same workweek. You know what else I did? I worked a lot, and I mean a lot, of overtime. I needed the money to pay for school. So how do you figure overtime in a workweek in which an employee works at more than one rate? What is the regular rate for that? Well first, there is a general rule:

Where an employee in a single workweek works at two or more different types of work for which different non-overtime rates of pay (of not less than the applicable minimum wage) have been established, his regular rate for that week is the weighted average of such rates. That is, his total earnings (except statutory exclusions) are computed to include his compensation during the workweek from all such rates, and are then divided by the total number of hours worked at all jobs. Certain statutory exceptions permitting alternative methods of computing overtime pay in such cases are discussed in §§778.400 and 778.415 through 778.421.

29 CFR § 778.115.

So if I work at two or more rates in a single workweek, my employer has to use a “weighted average” to figure out the regular rate and then pay overtime on that computed regular rate.

But what are these “alternative methods” that the Regulations speak of? Well, let’s take a look.

Section 7(g)(3) of the Act provides the following exception from the provisions of section 7(a):
(g) No employer shall be deemed to have violated subsection (a) by employing any employee for a workweek in excess of the maximum workweek applicable to such employee under such subsection if, pursuant to an agreement or understanding arrived at between the employer and the employee before performance of the work, the amount paid to the employee for the number of hours worked by him in such workweek in excess of the maximum workweek applicable to such employee under such subsection:
* * * * *
(3) is computed at a rate not less than one and one-half times the rate established by such agreement or understanding as the basic rate to be used in computing overtime compensation thereunder: Provided, That the rate so established shall be authorized by regulation by the Secretary of Labor as being substantially equivalent to the average hourly earnings of the employee, exclusive of overtime premiums, in the particular work over a representative period of time; and if (i) the employee’s average hourly earnings for the workweek exclusive of payments described in paragraphs (1) through (7) of subsection (e) are not less than the minimum hourly rate required by applicable law, and (ii) extra overtime compensation is properly computed and paid on other forms of additional pay required to be included in computing the regular rate.

29 CFR §778.401.

What? We are not going to go into this in great detail, but here is the gist. Section 7(g)(3) of the FLSA allows employer to pay overtime based on an established “basic rate” rather than the regular rate but in order to do so the employer has to comply, to the letter, with the very strict Regulations contained in Section 7(g)(3)of the FLSA and part 548 of the Regulations. There are 6 basic requirements: 1. The employer and employee have to agree to the rate; 2. The rate is a specified rate or can be calculated based on a specified formula; 3. The basic rate is authorized by part 548.3 or by the Administrator of the Wage Hour Division; 4. The basic rate minus authorized deductions has to be greater than the minimum wage; 5. All overtime must be paid at a rate of at least one and one-half times the basic rate; and 6. Any additional overtime not covered by the basic rate agreement has to be properly calculated and paid. So, if you want to do this, TALK TO YOUR LABOR LAWYER FIRST.

Next time we will talk about the other exceptions to the general rule.

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.

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