Archive for November, 2014

The regular rate and commissions. Part Last.

That’s a couple of weeks just talking about how commissions can affect the regular rate. That seems like a lot, doesn’t it? Well, this is the last time – in fact this is the last time in something like 10 or 12 posts that we will be talking about adding things to the hourly rate to get to the regular rate. So what do we have left? Well, just a couple of minor points that will wrap all of this up. The first deals with delays in computing commission payments. The DOL recognized that the business world does not run in nice neat little time chunks. So they understood when they drafted these Regulations that especially with commissions you could not expect to wrap it up all in one neat little package. So?

If there are delays in crediting sales or debiting returns or allowances which affect the computation of commissions, the amounts paid to the employee for the computation period will be accepted as the total commission earnings of the employee during such period, and the commission may be allocated over the period from the last commission computation date to the present commission computation date, even though there may be credits or debits resulting from work which actually occurred during a previous period. The hourly increase resulting from the commission may be computed as outlined in the preceding paragraphs.

29 CFR § 778.121.

Basically, you get a break, and if, after you have computed and allocated commission payments for your defined period, there are changes due to, say, payments not being made, or bounced checks or some other thing that would change the commission, you don’t have to go back and do it all over again. You can allocate those changes to the new period even though the work was done in the last period.

And last, and what I would consider really rare, you can use a basic rate for employees paid wholly or partly on commission. Go here for a discussion of the basic rate. And here is that Reg:

Overtime pay for employees paid wholly or partly on a commission basis may be computed on an established basic rate, in lieu of the method described above. See §778.400 and part 548 of this chapter.

29 CFR § 778.122.

Next time we are going to move into Part C of Section 778 of the Regulations and start talking about some things you get to exclude rather than include in the regular rate. And next time, I have a surprise for you.

 

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 even contains it’s own examples, 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.