Developed by Lisa Swallow, CPA CMA MS

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Explain the major provisions of the Fair Labor Standards Act
Define hours worked
Describe the main types of records used to collect payroll data
Calculate regular and overtime pay
Identify distinctive compensation plans

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Includes all rates of pay including, but not limited to
Commissions
Nondiscretionary bonuses and severance pay
On-call or differential pay
Discretionary bonus (one which is not agreed upon or promised before hand) is not included in an employee’s regular rate of pay
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Other types of compensation not included in regular rate of pay include
Gifts made as a reward for service
Payments for a bona fide profit-sharing plan
Vacation, holiday, sick day or jury duty pay
Vehicle, tool or uniform allowances
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“Tipped employee” regularly average more than $30/month in tips
Minimum tipped wages is $2.13/hour, therefore tip credit = $5.12/hour – but may be calculated differently based upon state law
Employee must make $7.25/hour when combining tips/wages ($7.25 x 40 = $290 minimum weekly gross)
Tip credit remains the same for overtime pay calculation purposes
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Examples of tips received for 40-hour workweek
#1. Reported tips = $43
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*40 hours x
$2.13/hour = $85.20
Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290 (No - so employer must pay additional wages of $290 - $43 = $247)
#2. Reported tips = $1,189
• Is $85.20 + $1,189 > $290 - (Yes – so employer pays $85.20 wages)
Note: states’ tip credit percentages may differ from federal law
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Workweek established by corporate policy
Must be seven consecutive 24-hour periods
For example 12:01 a.m. Saturday - 11:59 p.m. Friday
Some states require daily overtime (OT) over 8 hours (if state plan is more generous than FLSA, state law is followed)
FLSA sets OT pay at 1.5 times regular pay
Employer can require employees to work overtime
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Exceptions to the above are as follows
Hospital employee, overtime for 80+ hours in 14 days or over 8 hours in a day (whichever is greatest)
Retail or service industry employees earning commission (special rules)
Employee receiving remedial education
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“Exempt” means exempt from some, or all, of FLSA provisions
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White-collar workers as outlined in Figure 2-2 (p. 2-10) are exempt
Executives, administrators, professionals
Business owners, highly compensated employees
Computer professionals and creative professionals
Outside salespeople
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Test of exemption means employee must meet ‘primary duty’ requirements listed in Figure 2-2
Employee must be paid on salary basis at least $455/week
Blue collar workers are always entitled to overtime pay – includes police officers, EMTs, firefighters, paramedics and LPNs
Note: Putting someone on salary doesn’t mean he/she is exempt!!
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Principal activities require exertion, and are required by the employer and for the employer’s benefit
Prep at work station is principal activity and in some situations changing in/out of protective gear may be part of workday
Travel (when part of principal workday) is compensable
Idle time and wait time (waiting to provide employer’s service)
Rest periods under 20 minutes are principal activities (can’t make employee
“check out”)
Meal periods are not compensable time unless employee must perform some tasks while eating – generally 30 minutes or longer
Work at home is principal activity for nonexempt employees
Sleep time is principal activity if required to be on duty < 24 hours
Training sessions (with certain caveats)
Waiting for doctor’s appointment on site
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Time sheets indicate arrival/departure time of employee
Computerized time/attendance recording systems
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Card-generated systems use computerized time cards
Badge systems employ badges in conjunction with electronic time clocks
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Cardless and badgeless sytems require that an employee use their PIN number to process timekeeping
PC-based system allows employee to clock in via computer
Next generation technology includes touch-screen kiosks, web-based, biometrics and IVR (interactive voice response)
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• Biweekly (26) - 80 hours each pay period
Semi-monthly (24) - different hours each pay period
Monthly (12)- different hours each pay period
Weekly (52) - 40 hours each pay period
Employer may have different pay periods for different groups within same company!
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Most common method
Calculate gross pay (40 hours x employee’s regular rate)
OT rate then calculated by multiplying 1.5 x employee’s regular rate x hours in excess of 40
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Other method
Calculate gross pay (all hours worked x employee’s regular rate)
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Then calculate an overtime premium (hours in excess of 40 x overtime premium rate*)
Hourly rate x ½ = *overtime premium rate
These methods result in same total gross pay!
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Employee and employer may forge an agreement that a fluctuating schedule on a fixed salary is acceptable
Overtime is calculated by dividing normal salary by total hours worked
Then an extra .5 overtime premium is paid for all hours worked over 40 or
Can divide fixed salary by 40 hours – gives different pay rate each week
Then an extra .5 overtime premium is paid for all hours worked over 40
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Alternative – BELO Plan
Appropriate for very irregular work schedule
Deductions cannot be made for non-disciplinary absences
Guaranteed compensation cannot be for more than 60 hours
Calculate salary as wage rate multiplied by maximum number of hours and then add 50% for overtime
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• FLSA requires piecework earners to get paid for nonproductive time
Must equal minimum wage with OT calculated one of two ways
Method A
• Units produced x unit piece rate = regular earnings
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• Regular earnings/total hours = hourly rate
Hourly rate x 1/2 = OT premium
Regular earnings + (OT premium x OT hours) = gross pay or
Method B
• (Units produced in 40 hours x piece rate) +
[(Units produced in OT) x (1.5 x piece rate)]
Note: two methods don’t give same results!!
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Special incentive plans are modifications of piece-rate plans
• Used to entice workers to produce more
Computation of payroll is based on differing rates for differing quantities of production
Example of incentive plan
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• .18/unit for units inspected up to 2,000 units/week
.24/unit for units inspected between 2,001-3,500 units/week
.36/unit for units inspected over 3,500 units/week
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