1 HOW TO CALCULATE OVERTIME PAY FOR NONEXEMPT EMPLOYEES PAID BY THE SQUARE OR SALARY Under the Fair Labor Standards Act (FLSA), employees are entitled to be paid the federal minimum wage and overtime pay for all hours worked in excess of 40 hours within a single workweek unless they are subject to FLSA s exemption provisions. FLSA provides exemptions from overtime pay in certain situations, most notably the following employee groups: bona fide executives; administrative employees; professionals; computer employees; outside sales employees; and certain highly compensated employees. To qualify as an exempt employee under FLSA, an individual, regardless of his or her occupation, must also be paid a minimum of $455 per week (or $23,660 per year) unless the individual is employed in the field of medicine, law or teaching. Employees who do not qualify for any of the exemptions are nonexempt employees who are entitled to the federal minimum wage and overtime pay. REGULAR RATE OF PAY The regular rate of pay determines the amount of overtime pay owed to nonexempt employees for hours worked in excess of 40 hours during a workweek. Employees are entitled to time and onehalf their regular pay rate for each hour worked in excess of 40 hours during a workweek. The regular rate of pay for a nonexempt employee is equal to the total compensation paid to an employee (with the exception of certain payments excluded by FLSA) divided by the total number of hours worked by the employee during a single workweek. When an employee is paid an hourly rate, the hourly rate is the employee s regular rate of pay. -1-
2 NONEXEMPT OVERTIME/2 For example, if an employer pays an employee $10 per hour and the employee works 40 hours during a week, earning $400, the employee s regular rate of pay is $10 per hour. Assuming the employee earning $10 per hour works 45 hours during a single workweek, for each hour in excess of 40 hours worked, the employee is entitled to compensation at a rate of time and one-half their regular pay rate. Therefore, if a nonexempt employee whose rate of time is $10 per hour works five overtime hours during a workweek (45 hours total), he or she will be compensated for five additional hours at a rate of $15 per hour, or time and one-half the regular pay rate of $10 per hour. PIECE-MEAL WORK AND BY THE SQUARE Piece-meal work is work for which an employer agrees to pay a certain sum based on the completion of a certain task, production of a certain item or repair of a particular item. The purpose of paying employees a piece-meal rate is to compensate those employees for their productive and nonproductive time. Many roofing contracting companies that perform shingle installation pay their employees a mutually agreed upon piece-meal rate, such as a specified dollar amount per square. To determine the regular rate for employees paid by the square, the total wages earned by the employee for the workweek is divided by the total number of hours worked during that week, including productive and nonproductive hours. For each hour worked over 40 hours in a week, the piece-meal worker must be compensated at the rate of time and one-half the regular rate of pay for that week. For example, Roofs-4-U has been contracted to install a roof system on an elementary school. Roofs-4-U has agreed to pay its employee, Johnny Smith, $10 for each roofing square he installs. During a workweek, Johnny installs 800 roofing squares and earns $8,000. It took Johnny 60 hours to install the 800 roofing squares. To calculate Johnny s regular rate of pay, his total compensation -2-
3 NONEXEMPT OVERTIME/3 for the week ($8,000) is divided by the total number of hours he worked (60), which gives him a regular rate of $ per hour. Now, to determine how much additional compensation Johnny is owed, his employer must take Johnny s regular rate of $ per hour and divide it in half ($66.67). The employer then must multiply the half-rate ($66.67) by the total number of hours Johnny worked in excess of 40 hours (20 additional hours in this example) to determine Johnny s additional compensation: $66.67 x 20 = $1, Now, add the additional compensation ($1,333.40) to the regular pay for the week ($8,000) for a total of $9, for the workweek. Alternatively, FLSA allows an employee paid on a piece-meal basis, such as being paid by the square, to reach an agreement with the employer in advance that he or she will be paid at a rate of no less than time and one-half the regular pay rate for each piece produced during overtime hours. The rate must comply with FLSA minimum wage requirements, if applicable. In cases when such an agreement is made, the employer need not provide further overtime compensation. Such agreements may only be made if the piece rate is a bona fide rate, meaning it is the rate actually paid for work performed during regular (not overtime) hours and is above the minimum wage; the hours for which overtime compensation is being claimed are in excess of 40 hours for the workweek; and the compensation paid for the overtime hours is at least equal to time and one-half the regular pay rate applicable to minimum wage standards (depending on whether FLSA provisions are applicable). For example, Damon Jones is employed to install shingles for Roofers Plus at a piece rate of $100 for every 10 feet of shingling laid and has agreed in advance to paid $150 for every 10 feet of shingling laid during hours worked in excess of 40 hours during a single workweek. Damon lays 800 feet of shingling during his first 40 hours that week, earning $8,000 ($100 x 800/10). He then works an additional 10 hours that week, laying an additional 100 feet of shingling. Damon now is -3-
4 NONEXEMPT OVERTIME/4 entitled to $1,500 for his overtime work ($150 x 100/10), for a total of $9,500 for the workweek. This is an acceptable overtime arrangement because the rate of compensation is a bona fide piece rate; the overtime compensation is for time in excess of 40 hours for the workweek; and the rate of pay is at least equal to the applicable FLSA minimum wage standard. SALARY Some roofing contractors may choose to pay their nonexempt employees a salary rather than an hourly wage or by the square. In instances where nonexempt employees are paid a salary, it is important to know how many hours of work the salary is intended to cover in order to determine the regular rate of pay. For example, if the arrangement between the roofing contractor and the nonexempt employee is for the employee to be paid a weekly salary of $810 for a 45-hour workweek, the regular rate of pay is determined by dividing the $810 straight-time salary by 45 hours, resulting in a regular rate of pay of $18 an hour. In this example, the nonexempt employee who works 45 hours is due additional overtime computed by multiplying the five hours of overtime by one-half the regular rate of pay ($9). In this example, this amounts to an additional $45 ($9 x 5). If the salary paid to the nonexempt employee covers a period longer than one workweek, such as a month, it must be reduced to its workweek equivalent. A monthly salary, for example, 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). Alternatively, the parities may provide the regular rates are to 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 (keep in mind, however, the regular rate must not be less than the minimum wage). -4-
5 NONEXEMPT OVERTIME/5 Given the increase in the number of wage and hour audits under the Obama administration, be sure to follow FLSA rules to avoid liability for back wages or unpaid overtime pay. ### -5-
The Top Three FLSA Violations and How to Avoid Them Vicki M. Lambert, CPP Introduction The Wage and Hour Division (WHD) of the U.S. Department of Labor is responsible for administering and enforcing some
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