Archive for May, 2014

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.