often is more complicated than just paying nonexempt employees for all hours worked over 40 in a week. You also have to consider any bonuses paid, how many jobs the employee worked, and whether the employee actually worked 40 hours. Find out in this and next week's E-Tips the answers to ten of the most common questions on overtime.
Most employers understand that the federal Fair Labor Standards Act
(FLSA) requires you to pay nonexempt employees overtime for all hours worked over 40 in a single workweek. ("Nonexempt
" refers to all employees covered by the minimum wage and overtime requirements of the law, i.e. those that are not exempt from it.) But how do you determine the appropriate overtime pay rate for a nonexempt employee who works more than one job or is paid a salary (as opposed to hourly pay)?
Sorting through the wage and hour rules can be a formidable task even for seasoned HR professionals. To help you understand the FLSA's requirements, this and next week's E-Tips address ten of the most common questions regarding how to calculate overtime payments for nonexempt employees.
In this article issue, you'll find out how "regular rate of pay" is defined, whether you can average hours, how to pay salaried nonexempt employees, how to calculate overtime for two jobs, and how bonuses affect overtime pay calculation.
Next week, you'll learn whether you can pay comp time-off instead of overtime, how vacation time and shift differentials affect overtime pay, whether employees can forgo overtime pay, and what state laws regulate overtime.
1. How is overtime calculated in general and what is an employee's "regular rate" of pay?
The FLSA requires that every employee covered by the Act who works more than 40 hours in a single workweek must be paid at least one and one-half times that employee's "regular rate" for each hour over 40. The FLSA defines the "regular rate" as all remuneration for employment paid to or on behalf of the employee, although some items of compensation (such as certain bonus payments) do not have to be included in the calculation (see question 5, below). Thus, the employee's regular rate of pay per hour for the week must be calculated before the overtime rate can be determined.
2. When calculating overtime, can you consider the average number of
hours an employee works over several weeks?
Generally, no. The FLSA requires employers to pay overtime for all hours worked over 40 in a single workweek period, and the hours may not be averaged over two or more weeks. A workweek is defined as a fixed period of 168 hours or seven consecutive 24-hour days. So, if an employee works 30 hours one week and 50 hours the next, he must receive overtime compensation for the hours over 40 that he worked in the second week (even though the average number of hours for the two weeks is 40). This rule applies regardless of whether the employee is paid on a daily, weekly, biweekly, monthly, or other basis.
There are two exceptions to this rule. Hospitals and residential care facilities are permitted to establish a 14-day period in lieu of the seven- day workweek for purposes of computing overtime, if the affected employees agree. In addition, public agencies may elect to pay fire protection and law enforcement employees overtime after they have worked a set number of hours (212 hours for fire protection employees and 171 hours for law enforcement employees) per work period (defined as 28 consecutive days) instead of after 40 hours in a single workweek.
3. How do you calculate pay and overtime for a salaried, nonexempt employee?
For employees who are not paid a regular hourly rate (such as those whose compensation is determined on a salary, piece-rate, or commission basis), you must determine what their regular hourly rate would be based on their total compensation. The regular hourly rate is computed by dividing the salary by the number of hours the salary is intended to compensate.
For example, if an employee is hired at a salary of $400 and this salary is compensation for a regular workweek of 40 hours, the employee's regular rate of pay is $400 a week divided by 40 hours, or $10 an hour. If the employee works overtime, he is entitled to receive $10 for each of the first 40 hours and $15 (one and one-half times $10) for each hour thereafter.
4. How do you calculate overtime for a nonexempt employee who works two jobs with different pay rates?
The FLSA regulations specify two methods for determining an employee's overtime rate when he works two jobs at different pay rates. Typically, when working more than one job, the employee's regular rate of pay is calculated as the weighted average of the different rates.
For example, the regular rate of pay for an employee who works 35
hours per week at $15 per hour as a machine operator ($525), and
works 10 hours that same week at $7 per hour cutting the grass outside
the plant ($70), is $595 divided by 45 hours, or $13.22 per hour. Since you have already calculated the regular straight-time rate for 45 hours ($595), you then only owe the additional "half time" premium rate of $6.61 for each overtime hour worked, calculated as half of the weighted average of the two jobs ($13.22 divided by 2 equals $6.61). The overtime premium for the 5 hours worked over 40 in the week, therefore, would equal $33.05 (5 overtime hours x $6.61). Total pay for the week would be $628.05 ($595 straight time pay plus $33.05 overtime premium). The employee's regular and overtime rates may vary from week to week with the number of hours spent performing each job.
Alternatively, an employer and employee may agree, before the work is performed, that the overtime rate will be based on the regular rate that applies to the type of work performed during the hours in excess of 40. Therefore, if an employee spends 35 hours in a week working as a machine operator at $15 per hour, and five hours a week cutting the grass at $7 per hour, the overtime rate for any hours over 40 spent cutting the grass is $10.50 per hour ($7.00 times one and one-half). Conversely, the overtime rate for any hours over 40 spent working as a machine operator is $22.50 ($15.00 times one and one-half). This method of computation is available for hourly employees only and does not apply to nonexempt salaried employees.
5. How do bonuses and incentives affect overtime pay?
Bonuses and incentives that are dependent on hours worked, productivity, or efficiency must be included in determining an employee's "regular rate" of pay. For example, an hourly employee who earns $7 per hour in a 40-hour workweek has a "regular rate" of pay of $7 per hour and an overtime rate of $10.50 (one and one-half times $7). If that same employee received a $50 production bonus for that week, the employee's regular rate of pay would change to $8.25 per hour ($50 plus the regular weekly rate of $280, divided by 40 hours) and the overtime rate becomes $12.38 per hour for that week.
Under some bonus plans, the bonus is not paid weekly. In that case, the employer may disregard the bonus until the time when the bonus is actually determined and, in the meantime, may pay compensation for overtime at one and one-half times the employee's base hourly rate, exclusive of the bonus. When the amount of the bonus is properly calculated, it must be allocated over the period it covers, and a revised overtime rate then must be applied to any hours in excess of 40 that were worked during that period. The employee should receive additional compensation for each workweek including overtime during the period. The amount will be calculated based on the new overtime premium using the bonus, less the overtime premium previously paid. Other examples of bonuses or incentives that must be included in an employee's regular rate of pay are nondiscretionary bonuses paid according to a contract; efficiency bonuses for completing work in less than the allotted time; attendance bonuses; and bonuses paid to employees to work in undesirable locations.
Bonuses that do not have to be included in the regular rate of pay are those received on special occasions (such as Christmas) as a reward for service and which are not measured by, or dependent on, hours worked, productivity, or efficiency. In addition, premium pay for working on holidays, Saturdays, or Sundays does not have to be included in overtime calculations, if the amount is at least one and one-half times the employee's regular rate of pay.
Learn more about FLSA.
Labels: exempt employees, flsa, hours of work, nonexempt, overtime