Average vs. Weighted Average When It Comes to Calculating Overtime Rates–Another Use for Algebra!

Calculating overtime is always tricky.  What rate is the “regular rate of pay” as required by the Fair Labor Standards Act (FLSA) is a question that must be answered each time for each calculation.  What can make this even more difficult is when the employee works at more than one rate in the workweek.  What rate do you use for the “regular rate of pay” if the employee has two or more hourly rates during the workweek? Can you simply average the different rates or is something more required?  The Department of Labor recently addressed this situation in Opinion Letter FLSA 2018-28, dated December 21, 2018.

Facts of the letter:  The employer in question wanted to determine if their compensation plan, which pays an average hourly rate that may vary from workweek to workweek, complies with the FLSA. It was concerned in both the area of minimum wage and calculating the overtime rate.  The employer pays a different rate for when an employee is working with a client as opposed to when the employee is traveling between clients.  It makes sure that the typical standard rate of pay is $10.00 per hour and if the employee works over 40 hours in any given workweek, they are paid overtime based on the $10.00 rate.

The DOL agreed that the employer followed the minimum wage requirement as the employer is paying well above the minimum wage of $7.25 per hour.  However, the problem for the employer is with the rate used to calculate overtime.  According to the letter:

…If the employer always assumes a regular rate of pay of $10 per hour when calculating overtime due, then the employer will not pay all overtime due to employees whose actual regular rate of pay exceeds $10 per hour. 29 C.F.R. § 778.107. Neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an “actual fact” based on “mathematical computation.” Walling v. Youngerman-Reynolds Hardwood Co., Inc., 325 U.S. 419, 42425 (1945); 29 C.F.R. § 778.108. That said, the compensation plan does comply with the FLSA’s overtime requirements for all employees whose actual regular rates of pay are less than $10 per hour, as an employer may choose to pay an overtime premium in excess of the statutorily required amount.

So what rate should an employer use to calculate the overtime in situations where the employee is working two or more rates within the workweek?  The rate is determined by what is known as a “weighted average” not an average of the rates. The DOL addresses this method in Fact Sheet #23: Overtime Pay Requirements of the FLSAIt reads as follows:

…Where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. That is, the earnings from all such rates are added together and this total is then divided by the total number of hours worked at all jobs. In addition, section 7(g)(2) of the FLSA allows, under specified conditions, the computation of overtime pay based on one and one-half times the hourly rate in effect when the overtime work is performed. The requirements for computing overtime pay pursuant to section 7(g)(2) are prescribed in 29 CFR 778.415 through 778.421.

Here is an example of a weighted average calculation: The employee has worked the following hours at the following rates for the workweek:

Step 1: To determine the weighted average the following calculations would be required:

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay

$475.75 divided by 43 = $11.06 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours

$11.06 x .5 x 3 = $16.59

Step 4: Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3): $475.75 + $16.59 = $492.34.  $492.34 is the total weekly compensation.

In closing, it must be remembered that it is the employer’s responsibility to ensure that the regular rate of pay used for overtime calculations is the correct one.

 

Paying Extra to Exempt Employees

I always seem to get questions this time of year about paying overtime or “extra pay” to exempt employees.  Many departments or companies have this time of year as their busiest and want to make sure that exempt employees can earn extra monies during this time without endangering their exempt status or actually converting those employees to nonexempt.  I want to refer my followers to a great blog by Bill Pokorny of Franczek Radelet written for the Wage and Hour Insights blog that answers this exact question. I hope you find it useful.

Guest Blogger: Productivity Back on Track: 5 Time Tracking Productivity Benefits

As summer is coming to a close we have one more guest blogger for you with some great information on productivity.  I hope you enjoy this blog from Dean Mathews of OnTheClock.

As a payroll manager, tracking workplace productivity is more than a default part of your job description.

As the main custodian of data regarding the number of hours employees spend working, there’s a wealth of insight you can provide to unlock potential productivity improvements in your organization.

However, this is only possible if your workplace is equipped with a good time tracking system.

You might be wondering, “Well, we do use timesheets?” While there is nothing intrinsically wrong with this time tracking method, traditional timesheets are not as fool-proof as the sophisticated time tracking software available today.

In fact, research published in Harvard Business Review revealed that the majority of employees are inaccurately filling out their timesheets. This is costing the US economy $7.4 billion in lost productivity every day in the service sector alone.

Productivity is a shared interest between the company and its employees. As part of the payroll department, the following 5 benefits can be cited to rally your organization to use automated time tracking:

  1. Minimizes Multitasking

You might be staring at your screen right now confused.

Isn’t multitasking a productivity booster? So much so that it’s a skill a lot of businesses value.

Turns out that this is a big misconception.

Scientists have found that multitasking is a huge productivity downer, and can rob an employee up to 40% of his/her productive time. According to the research: “Psychologists who study what happens to cognition (mental processes) when people try to perform more than one task at a time have found that the mind and brain were not designed for heavy-duty multitasking. Psychologists tend to liken the job to choreography or air-traffic control, noting that in these operations, as in others, mental overload can result in catastrophe.”

With time tracking, employees must focus on the one task that is currently being tracked. This reduces what is called context switching and allows employees to focus their mental energy on the task at hand, producing better quality work.

It also allows project managers to see which employees engage in multitasking so the proper guidance and coaching can be provided to help them focus on one task at a time.

  1. Reduces Time On Non-Essential Tasks

Email is an essential business communication tool, but it is also a productivity blackhole.

An average office worker receives approximately 200 emails per day and spends 2.5 hours clearing out their inbox. Out of these 200 emails, 144 are not related to them and they were just CC-ed or BCC-ed in the conversation.

Email is just one of the non-essential tasks that is taking time away from more important projects. This does not even take into account the time spent on non-work related tasks such as social media browsing. What’s worse, as a payroll manager you know money is going down the drain paying employees for time spent on tasks that cannot be billed to your clients or customers.

With a well-established time tracking software, an organization can identify these productivity leaks and implement measures to reduce or eliminate them. This improves employee morale by reducing stress. At the same time, it saves the company money.

  1. Ensures Accurate Salary Computation

An unhappy employee is an unproductive employee. One of the major things that decreases morale for employees is not being accurately compensated.

This creates a cloud of distrust in the organization. Employees feel they are being cheated on and not getting the remuneration they deserve. This may result in a backlash in the form of low-quality work derailing important projects.

Of course, there are some unscrupulous businesses who intentionally shortchange their employees, but most payroll inaccuracies are a result of inaccurate time tracking.

Having a time tracking system in place eliminates inaccuracies in payroll because hours are easily and automatically tracked. There’s also a record, employees can refer to when payroll questions arise.

  1. Identifies Overworked Employees

All work and no play makes employees unproductive.

Putting in extended, and sometimes exhaustive, hours at work for a long period of time is a proven productivity killer. It can snowball into other problems such as habitual absences or tardiness, low employee morale, high attrition rates, and client/customer dissatisfaction.

The sad news is many managers do not catch these signs early enough, primarily due to poor time tracking practices.

Employees who are paid by the hour might not mind putting in the extra hours because they are getting paid for their billable hours. However, working overtime can cause serious issues with salaried, flat-rate employees.

While employee wellness is not the main responsibility of a payroll manager, a practical time tracking system can offer useful data to identify those employees in jeopardy of burning themselves out.

  1. Improves Project Planning Practices

Time tracking reveals discrepancies in time estimates between the projections during project planning and the actual hours spent during the project execution. The benefit this has on productivity is three-pronged.

First, it allows project managers to improve their forecasting for future similar projects.

Second, it prevents employee burnout as discussed above. There’s no need to put in extended hours to meet project deadlines if it’s not really necessary.

Lastly, it allows the organization to charge more appropriately via accurate accounting for the necessary man-hours to complete a project.

It’s Time to Be More Productive

Just a quick caveat. In order for any time tracking system to improve workplace productivity, making productivity a key priority should already be in the DNA of your organization’s culture. You should already know the core principles of good time management. Otherwise, you’re just going to waste time, tracking wasted time, right?

That said, time tracking has been proven time and again to increase productivity. Following the old business adage that you cannot manage and improve what you don’t track and measure, time tracking can open new heights of productivity that you never thought was possible. It also benefits your employees by minimizing multitasking and reducing time spent on non-essential tasks.

Indeed, it is time to put your workplace back on track.

Author Bio

Dean Mathews is the founder and CEO of OnTheClock, an online time clock app that helps over 8000 businesses all around the world track their employee time. Dean has over 20 years of experience designing and developing web-based business apps. He views software development as a form of art. If the artist creates a masterpiece, many peoples lives are touched and changed for the better. When he is not perfecting time tracking, Dean enjoys expanding his faith, spending time with family, friends and finding ways to make the world just a little better. You can find Dean on LinkedIn.

FLSA Video Training Has Arrived at DOL/WHD

The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) is launching a new series of brief, plain-language videos to help employers understand their legal obligations when it comes to calculating overtime etc.  According the the WHD website these videos “strip away the legalese and provide employers with basic information…”  The topics provided so far are:

  • Coverage: Does the Fair Labor Standards Act (FLSA) apply to my business?
  • Minimum Wage: What minimum wage requirements apply to my business?
  • Deductions: Can I charge my employees for uniforms or other business expenses?
  • Hours Worked: Do I have to Pay for that time?
  • Overtime: When do I owe overtime compensation and how do I pay it correctly?

The videos are very well done and cover the rules quite nicely.  For example the overtime video does go into all the calculations needed for regular rate of pay.  They last an average of seven or eight minutes each. If you are looking for a good basic training on these topics listed check out the videos from WHD.

Using Fluctuating Workweek? Might Want to Think Again

If you are currently using the fluctuating workweek that is permitted under the Fair Labor Standard Acts (FLSA) you may want to review that decision.  The Fifth Circuit Court of Appeals has drawn some limits on that method.  Bill Pokorny has done a fantastic blog on discussing this recent court case. Check it out for the latest if you are currently using this type of workweek or just want to increase your current knowledge in this area.

Does Time and A Half Pay Count Towards Overtime?

When conducting my webinars on the FLSA requirements one area always seems confusing to attendees and that is the eight types of payments that can be excluded when calculating regular rate of pay.  The one found most often to be confusing to my attendees and maybe to you as well is the one that is for bona fide overtime premiums. Bill Pokorny has done an excellent blog post on this subject that I know you will find helpful on this topic. Please take the time to check it out if you offer this type of payment or to improve your general payroll knowledge.

Last Round for Now: Obama Era New OT Rules Knocked Out

On August 31st, the Judge in charge of the court case for the new OT rules initiated by President Obama issued its final ruling.  Basically he sided with the plaintiffs. For an excellent recap of the ruling I am referring you to Bill Pokorny’s blog.

I Need Your Input: Regular Rate of Pay…Your Payroll System

I recently had a discussion with an associate (also an payroll consultant) about the regular rate of pay and payroll systems in general.  Unfortunately the question we both had, we could not fully answer. So I am turning to my blog followers to help me out.  When I started in payroll we did payroll by hand, including the regular rate of pay calculations.  Of course, systems have improved since 1977.  But my question is…which current systems (whether in-house or service bureau) do regular rate of pay calculations?  For example, I give a bonus to an employee for finishing a project on time (nondiscretionary bonus) and he earned it in the same week it was paid.  For this scenario would your payroll system do the regular rate of pay calculation? Or would you have to do it by hand and add it in?  Second example, an employee receives a monthly commission on sales (hourly employee).  He is paid his commission on July 15th for the month of June.  Would your system be able to recalculate the additional overtime due? Or would you have to do it by hand (Excel spreadsheet)?

If your system does not do the regular rate of pay calculation, did you know this when you bought the system or signed up for the service bureau?

I appreciate any input you might have on the subject.  Please include the name of the system if you can do so. Also please note if you had to have a special  program written to handle the calculations.

Latest Round on Battle for Exempt Employees

The latest on the salary increase was released today.  The U.S. Department of Labor has today announced that it will publish a Request for Information (RFI), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees. The RFI offers the public the opportunity to provide information that will aid the Department in formulating a proposal to revise these regulations.  The RFI solicits feedback on questions related to the salary level test, the duties test, inclusion of non-discretionary bonuses and incentive payments to satisfy a portion of the salary level, the salary test for highly compensated employees, and automatic updating of the salary level tests. The 60-day comment period for all issues raised in the RFI ends on September 25, 2017.  The public may submit comments according to the instructions listed in the RFI as published in the Federal Register.

But the court case is still raging on.  The DOL has decided to fight the ruling, not to defend the limits set by the Obama administration, but to defend the concept that the DOL has the right to change the salary limit.  Lots of legal blogging on the topic so I wanted to include some of those blogs for you today:

Smith Gambrell & Russell LLP

Ogletree Deakins

Wage & Hour Insights

 

Is Charity Work Hours Worked?

Got a great blog post yesterday from Bill Pokorny, with Wage & Hour Insights concerning paying employees for charity work.  During this time of the year this question comes up a lot for payroll professionals. In his June 7th blog he has given a clear and concise answer on when charity work could be considered hours worked.  Check out his blog today.