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What Must You Provide for Your Employees? Part III
Familiarizing yourself with labor laws is not something that is at the top of your to-do list for running your business. Placing some of the legal jargon into everyday language might help the situation, but it is no substitute for actually practicing the regulations in your business. By performing the tasks the right way the first time (i.e. proper overtime pay, records of time worked, payroll deductions, etc.), you win the battle from the start. There is no substitute for understanding and complying with the law, so let’s dig in.
In order for executive, administrative, or professional employees to be considered exempt under the FLSA, such employees must be paid on a salary basis. Employees are considered to be paid on a salary basis within the meaning of the Act if under their employment agreements they regularly receive in each pay period a predetermined amount that is not subject to reduction because of variations in the quality or quantity of the work they perform. The only exceptions under which an employer may make deductions from an employee's salary without disturbing that employee's "salaried" status are when:
1.)The employee is absent for a day or more for personal reasons, other than sickness or accident.
2.)The employee is absent for a day or more due to sickness or disability if the deduction is in accordance with a plan for compensating such losses.
3.)The employee is penalized for major safety violations.
Thus, because employees must receive their full salaries for any week in which they perform work without regard to the number of days or hours worked in order to be considered exempt from the minimum wage and overtime provisions of the FLSA, the effect of subjecting an exempt employee's pay to deductions for being late or absent is that the exemption is inapplicable to that employee during the entire period when such deductions were made.
Indeed, such deductions are antithetical to the concept of a salaried employee, because a salaried employee is compensated not for the amount of time spent on the job, but rather for the general value of services performed. It is precisely because executives are thought not to punch a time clock that the "salary test" for such employees requires that their predetermined pay not be subject to reduction because of variations in the quantity of work performed, especially when hourly increments are at issue.
If an employer pays non-exempt employees by means of salary, how does the employer calculate overtime?
If the employee is employed solely on a weekly salary basis, his regular hourly rate of pay, on the basis of which time and one-half must be paid, is computed by dividing the salary by the number of hours that the salary is intended to compensate. For example, if an employee is hired at a salary of $ 182.70 and if it is understood that this salary is compensation for a regular work week of 35 hours, the employee's regular rate of pay is $182.70 divided by 35 hours, or $5.22 an hour, and when he works overtime, he is entitled to receive $5.22 for each of the first 40 hours and $7.83(1 1/2x$5.22) for each hour thereafter. If an employee is hired at a salary of $220.80 for a 40-hour week, his regular rate is $5.52 an hour.
Where the salary covers a period longer than one workweek, such as one month, it must be reduced to its workweek equivalent. A monthly salary is subject to translation to its equivalent weekly wage by multiplying by 12 and dividing by 52. A semi-monthly salary is translated into its equivalent weekly wage by multiplying by 24 and dividing by 52. Once the weekly wage is arrived at, the regular hourly rate of pay will be calculated as indicated above. The regular rate of an employee who is paid a regular monthly salary of $1,040, or a regular semi-monthly salary of $520 for 40 hours a week, is thus found to be $6.00 per hour. The parties may provide that the regular rates shall 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. However, the resultant rate in such a case must not be less than the statutory minimum wage.
Are prizes, awards, bonuses, holiday and sick pay included in an employee's wages when calculating overtime pay?
All compensation paid by or on behalf of an employer to an employee as remuneration for employment must be included in the regular rate, whether paid in the form of cash or otherwise. Prizes and awards are therefore included in the regular rate if they are paid to an employee as remuneration for employment. If, therefore, it is asserted that a particular prize is not to be included in the regular rate, it must be shown either that the prize was not paid to the employee for employment, or that it is not a thing of value, which is part of wages.
Where a prize is awarded for the quality, quantity or efficiency of work done by the employee during his customary working hours at his normal assigned tasks, it is necessarily paid as additional remuneration for employment. Thus, prizes paid on the basis of such factors as cooperation, courtesy, efficiency, highest production, are part of the regular rate of pay.
Similarly, regularly paid bonuses must, as a general rule, be included in calculating the regular rate for overtime purposes. The only bonuses that need not be counted are:
Gifts or gratuities
These are payments in the nature of gifts made at Christmas time or on other special occasions as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency. Thus, if the payment is so substantial that it can be assumed that employees consider it a part of the wages for which they work, the bonus cannot be considered to be in the nature of a gift.
These are amounts paid in recognition of services during a given period. They may be excluded from overtime if the amount of the bonus is determined by the employer in his sole discretion at or near the end of the period the bonus covers. Additionally, the payments may not be made pursuant to any prior contract, agreement, or promise that would lead the employee to expect the payments regularly.
Profit sharing payments
These are payments from a bona fide profit sharing plan or trust or a bona fide thrift or savings plan.
All other types of bonus payments affect the regular rate of pay. This means that the bonus must be allocated over the period that it covers. Then, for each week in the period in which the employee has worked more than 40 hours, a "bonus adjustment" must be made in the employee's overtime pay.
Conversely, the amount of money given an employee for paid vacation or for holidays or sick leave need not be included in calculating his or her regular hourly rate of pay for overtime purposes. This is true even if the employee receives pay instead of a vacation. The view is that vacation is not compensation for hours worked where:
1.) There is an agreement between the company and the employee that he or she will get a vacation with pay.
2.) The pay equals the employee' s normal earnings for the vacation not taken. That is, the employee gets two weeks' pay for two weeks' vacation even if he or she did not take the vacation.
Furthermore, the amount paid an employee as vacation pay cannot in most cases be credited against overtime due an employee, since it is not pay for overtime or for hours actually worked. The same is true of paid holidays or paid sick leave when the employee is absent from work.
Must employers have non-exempt employees fill out time sheets?
The Act requires employers to maintain and preserve for at least three years payroll or other records setting forth the daily hours worked and total hours worked for each workweek for each non-exempt employee. Also, some supplementary records, including work schedules (e.g., time and earning cards) and wage rate tables must be preserved for two years. Failure to maintain required FLSA records is a violation of the Act and willful failure to do so or falsifying records is an offense punishable by criminal penalties. Although employers are not specifically required by the FLSA to have their employees fill out time sheets, some form of time recording is necessary to comply with FLSA and various other federal and state laws.
Do employers have to pay time and one-half for hours worked on Sundays and holidays?
The FLSA does not require employers to provide time and one-half or any other measure of extra compensation for hours worked on Sundays or holidays. However, the Act provides that extra compensation provided by a premium rate of at least time and one-half which an employer chooses to pay for work on Saturdays, Sundays, holidays, or regular days of rest or on the sixth or seventh day of a work week, may be treated as an overtime premium under the Act in the event that the employee works in excess of 40 hours that week.
Can employers deduct money owed to the company from non-exempt employees' paychecks?
Under the FLSA, the applicable minimum wage must be paid to employees free and clear except that deductions are permitted for the reasonable cost of fair value of board, lodging, or other facilities. Deductions for items other than facilities are permitted so long as they do not reduce an employee' s wage below the minimum and the employer does not, directly or indirectly, derive any profit or benefit from the transaction. Thus, when the employer is an employee's creditor, payment may not be made by deductions that reduce the employee's net pay below the minimum wage, even where the employee apparently consents to such an arrangement. An employer's ability to deduct certain items from an employee's paycheck may also be regulated by state law.
With all the above questions, be sure to check with the laws of your state regarding these issues.
This article is intended as information only and is not a substitute for legal or professional advice.
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