Calculating Overtime for Salaried Employees

June 25, 2012

Each week we receive a number of calls asking us, “We have a number of non-exempt employees who are nevertheless paid a salary. How do we calculate overtime for these employees?”
Let me begin by stating the question above is a positive sign, because if you find yourself asking it you’ve passed the first hurdle of realizing that not all “salaried” employees are exempt from the overtime requirements of the Fair Labor Standards Act.

Generally speaking, calculating overtime is a simple affair. Employees must be compensated for hours worked in excess of forty hours in a single workweek at a rate of one and one-half times the employee’s regular hourly rate of pay. The “regular rate” is calculated by dividing an employee’s total non-overtime compensation for the week by the total number of hours worked. For employees who are paid a simple hourly rate, this calculation is simple, as the regular rate is simply the employee’s normally hourly rate of pay.

However, things get trickier when a non-exempt employee is paid a salary. Suppose Chuck is paid a salary of $1000 per week. He works 50 hours in a certain week – 40 hours of straight time, and 10 hours of overtime. To calculate Chuck’s overtime pay, you need one more crucial piece of information: how many hours is the $1000 salary intended to cover?

According to the courts, this issue is a matter of the agreement between Chuck and his employer. Suppose the company has an employee handbook that says that the normal workweek consists of 35 hours. If, based upon that statement, there is a general understanding that the base salary is intended to cover 35 hours of straight-time work, Chuck’s pay would be (assuming I have my math right) as follows:

Regular rate = $1000 / 35 hours = $28.57/hr
Total pay = Regular salary + 5 hrs additional straight time + 10 hrs at time and-a-half
Total pay = $1000 + (5hrs x $28.57/hr) + (10 hrs x $28.57/hr x 1.5) = $1,571.40

On the other hand, suppose Chuck and the company have an understanding that the $1,000 salary is intended to cover up to 50 hours of work per week. In that case, no additional straight-time pay would be due if Chuck works 50 hours. Chuck would still be entitled to an overtime premium for the 10 hours of overtime worked. However, because his salary covers straight-time for those hours, the additional overtime premium due is only one half of the regular rate of pay:

Regular rate = $1000 / 50 hours = $20/hr
Total pay = Regular salary + 10 hours at 1/2 the regular rate
Total pay = $1000 + (10hrs x $20/hr / 2) = $1,100

Now, a smart employer looking at the above calculation might say to itself, “Ah, let’s agree that the employee’s salary will cover up to 100 hours of work.” That would make the regular rate just $10 per hour, and save the company $50 in overtime expenses, right? If this looks too good to be true, it is. First, if Chuck is never actually scheduled to work 100 hours in a week, that agreement will likely be viewed as a sham by the Department of Labor. Second, the regulations say that if Chuck works less than agreed number of hours, then his regular rate is calculated by dividing his total non-overtime compensation by the total number of hours worked. In other words, regardless of how many hours the salary is meant to cover, if he only works 50 hours, his regular rate will still be $20 per hour.

Now, one last wrinkle: suppose it’s understood by all concerned that Chuck’s salary is intended to cover his straight-time compensation not for a specified number of hours, but for all hours that he happens to work in any given week, regardless of how many or how few. While paying a fixed salary for a fluctuating workweek is permissible and can in some cases reduce your overtime liability, there are also some strict limitations on this method, and some new uncertainty introduced by some regulations recently published by the Department of Labor so let’s just stick to the basics. Don’t get creative, it will always get you in trouble.

Can Employees Agree to Be Exempt?

June 18, 2012

In a word, no. This question comes up more often than you might think. We get these calls all the time! In some cases, particular industries have developed a practice of treating certain categories of employees as “salaried” and assuming that they are not exempt. In others, employees would simply rather be “salaried” or “exempt” because this suggests a higher status than an “hourly” position, or because they prefer not to have to track their time. 

Unfortunately for employers, an employee’s choice generally had nothing to do with whether or not the employee can legitimately be classified as “exempt” from overtime requirements under state and federal law. With very few exceptions, the rights provided by the Fair Labor Standards Act and is state equivalents can’t be waived or modified by an agreement with the employee. 

Please understand, there is nothing in the Fair Labor Standards Act that precludes employers from paying a non-exempt employee a “salary.” The employee must still receive extra compensation for any hours in excess of the work time covered by the salary, and must receive 1-1/2 times the “regular rate of pay” for any hours worked in excess of 40 hours in a single workweek. However, if the employee works 40 or fewer hours in a single week and the salary is at least equal to the minimum wage for all hours worked, there is nothing wrong with paying a flat salary. 

Keep in mind this still means that you need to keep a detailed record of each employee’s daily work hours so that you can determine when overtime is owed. While there is no way around this, there are a number of relatively painless timekeeping systems on the market.

There are many employers who practice “payroll by exception,” in which employees who work on a known schedule report only deviations from their schedule, rather than “clocking in” and “clocking out” at the start and end of each shift. Such a system is very problematic and such systems require close attention by supervisors and management to ensure that employees are accurately reporting all deviations from their schedules. For that reason, a system in which employees affirmatively record their actual hours on a daily basis is not only preferable but in accordance with the state and federal requirements.  

Next Week-Calculating Overtime for Salaried Employees! Stay Tuned!

Feds Now Enforcing Break Times for Breast Feeders

June 10, 2012

The Department of Labor has begun enforcing the law passed in March 2010 requiring break time for nursing mothers and has cited a number of employers for violations of the law. California has had this protection in place far longer than the Feds who have now decided to put out some guidance which do expect employers to follow.

The health care reform law passed in 2010 amended the Fair Labor Standards Act requiring “reasonable” break time for employees who are nursing mothers. The general requirements are as follows:

  • The employee must be a non-exempt employee under the FLSA.
  • The nursing mother’s child must be 1 year old or younger.
  • Breaks must be provided as frequently as needed by the nursing mother.
  • The duration of the breaks “may vary” as needed but no specified time period is set forth in any Department of Labor guidance.
  • A place must be provided that is “shielded from view and free from intrusion from coworkers and the public” that is not a bathroom. The space need not be designated for this purpose at all times, but it must be available when the nursing mother needs it. If the employer has no nursing mothers, the employer does not need to maintain dedicated space for nursing mothers.

As you can see from the above, “breaks must be provided as frequently as needed by the nursing mother. This requirement is contrary to the regular break time requirements of 10 minutes for every four (4) hours of work. In addition, please keep in mind that inappropriate jokes and comments will open the down to litigation for a number of protected areas such as gender discrimination and sexual harassment.

FEDS Issue An Excellent Social Media Policy For Employers

June 4, 2012

We have received a number of requests regarding a social media policy. It is a difficult area simply because it is an emerging issue based upon media technology and innovative ways that people can now communicate with each other. Employers, as a result of not having an effective social media policy in place, have landed in hot water because their policy in many ways was unlawful and in violation of the National Labor Relations Act.  

Recently, the Acting General Counsel of the NLRB, Lafe Solomon, issued a report on findings from cases addressing the legality of various employers’ social media policies.  The NLRB report is the third NLRB report addressing social media issues, with two prior reports having been issued in August 2011 and January 2012.  Whereas the prior reports dealt primarily with the legality of employee terminations stemming from social media use, today’s report deals solely with social media policies.  The report provides several examples of broadly worded policy provisions determined to be unlawful because they “could be interpreted” to restrict employees’ Section 7 rights to engage in concerted activity and discuss the terms and conditions of their employment.  By way of example, policies that broadly preclude employees from posting or discussing any type of “confidential” information on social media sites are overbroad unless defined NOT to preclude employees from engaging in Section 7 rights ( basically, the right to discuss working conditions etc.) protected by the NLRA.   

Based upon the above, the NLRB has created a social media policy which meets their guidelines and would be lawful for employers to use. It is an excellent policy and we have it available for your use. If you are interested in obtaining a copy go to , click on “Contact us” and follow the directions to receive a copy.  Do to the volume of our readership it may take a day or so for a response based upon the number of clients who may want a copy.