Category: Wage & Hour

February 1, 2018

Calculating the Overtime “Regular Rate”

The Fair Labor Standards Act requires employers to pay non-exempt employees overtime if they work enough hours (usually over 40/week). Overtime must be paid at one-and-a-half times the employee’s “regular rate” of pay. Unfortunately, it’s not always so easy to calculate the employee’s regular rate.

Here we’ll look at some of the most common regular rate calculation issues. This article focuses on the federal FLSA. State overtime requirements often borrow the same overtime calculation rules, but state requirements may vary.

Defining the “Regular Rate” of Pay

The FLSA’s statutory definition of “regular rate” is almost as long as this blog post. The first few words define “regular rate” to include “all remuneration paid” to the employee. However, the next several hundred words identify exclusions.

More briefly stated than in the statute itself, these exclusions include certain:

sums paid as gifts;
payments made for occasional periods when no work is performed;
reimbursements for traveling expenses;
discretionary bonuses;
profit sharing;
payments made for employee benefits;
additional compensation for hours worked beyond a specified number in a day/week or outside the normal workday/week;
premium compensation for work on weekends or holidays; and
income derived from qualifying stock transactions.

Many of the items below are more nuanced than described here. So, don’t automatically exclude a payment just because it looks like it might fit on this list.

Significantly, the “regular rate” is an hourly rate. It’s always an hourly rate, even for employees who aren’t paid hourly. Many non-hourly employees are exempt, so it’s not necessary to calculate their regular rate. But some salaried employees are eligible for overtime. And some hourly employees also receive compensation beyond their base pay that counts toward their regular rate for overtime purpose.

When the Regular Rate Differs from the Base Hourly Rate

If a non-exempt employee receives any compensation other than their base hourly rate, the employer must consider what else to include in the regular rate when calculating overtime.

The regular hourly rate of pay of an employee is determined by dividing their total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked in that workweek.

Let’s look at how this work in several common situations.

Salaried Employees

If an employee’s only form of compensation is a fixed salary per week, then you compute the regular rate by dividing the salary by the number of hours that the employer reasonably intends the salary to compensate. So, if the employee is paid $800 per week to work 40 hours, the regular rate is $20 per hour. If that employee works 50 hours in a given week, then they would need to receive total pay of $1100 [$800 base salary for the first 40 hours and $300 ($20 x 1.5 x 10 hours) for the overtime].

Hourly Wage Plus Commissions

Some hourly employees are eligible to receive commissions or incentive bonuses based on a percentage of sales or another fixed formula. This additional compensation factors into the employee’s regular rate for overtime calculations.

The calculation may be relatively straightforward where commissions are paid weekly. Then you just divide the commissions for the week by the number of hours worked in the week and add it to the base hourly rate earned in the week to determine the overtime regular rate. Take for example a non-exempt employee who works 45 hours with a $10/hour base rate. The employee also earns $90 in commissions in a given week. Their regular rate in that workweek is $12 [the $10 base rate plus $2 ($90 in commissions / 45 hours worked)]. Their total compensation for the week, including overtime, must be $570 [$480 ($12 x 40 hours regular time pay, including commissions) + $90 (5 overtime hours x $12 regular rate, including commissions x 1.5)].

If, however, commissions are not earned and paid weekly, the calculation becomes more complicated. If the amount of commissions earned cannot be determined until after the regular pay day for the workweek in which the employee performed the work that results in the commissions, then the commissions don’t have to be included in the regular rate and paid as overtime on that payday. But, once determined, the commissions will eventually affect the regular rate, and may require additional overtime calculations and payments. The U.S. Department of Labor has specific rules for calculating the regular rate and allocating the commissions over earlier workweeks in order to fully compensate the employee for overtime earned.

Employees Working at Two or More Rates

Sometimes employees receive different rates of pay depending on what jobs or tasks they perform. By default, the regular rate is then determined by taking the weighted average of the separate rates earned. This means that the regular rate of an employee who spends 30 hours working for $15 and 20 hours working for $10 would be $13 per hour ($450 + $200 / 50). So the employee’s total compensation would be $715 [$450 + $200 + $65 (the half-time portion of the 10 overtime hours, since the regular time portion is already included here)].

An employer may, however, have the option of instead paying overtime calculated at 1.5 times the rate for the specific work performed during the overtime hours. Using the previous example, if the employee had worked all of the overtime in the job that pays $10 per hour base, then the regular rate for the overtime could be just the $10, rather than the weighted average wage. But the employee would have to apply this approach consistently, such that if the employee’s overtime (i.e., the last hours worked in the week beyond 40) were in the higher paying job, then the regular rate would be $15 rather than $10. For the employer to use this approach, the employee must know of and be willing to work under this overtime structure before beginning the work.

The second method might be disallowed if an employer uses it to systematically reduce an employee’s overtime pay. This might be case where the employer always requires the employee to perform the lower-rate work at the end of the week. Then the employer may need to revert to the weighted average method.

Many More Regular Rate Scenarios Exist

These are just some of the most common methods for determining regular rate of pay for FLSA overtime purposes. The U.S. Department of Labor has permitted various other exceptions and approaches, either based on direct statutory instructions or as enforcement practicalities. Employers facing non-routine overtime issues should confer with experienced legal counsel. Mistakes in overtime calculations can lead to significant underpayment liability for employers, including liquidated damages and potentially attorneys’ fees.

January 24, 2018

Overtime Exemptions for New York Employers (Webinar)

On January 23, 2018, I presented a complimentary webinar on Overtime Exemptions for New York Employers. For those who couldn’t attend the live webinar, I’m happy to make it available for you to watch at your convenience.

In the webinar, I discuss the most common overtime exemptions under the Fair Labor Standards Act and New York law, including:

Executive Exemption
Administrative Exemption
Professional Exemption
Outside Sales Exemption
Computer Employee Exemption
Highly Compensated Employee Exemption

Don’t have time to watch the whole webinar right now? Click here to download the slides from the webinar.

Why You Should Watch This Webinar

Most New York employers must ensure compliance with both the New York and federal overtime laws. Improperly classifying an employee as exempt can result in huge financial liabilities. Employees can recover not only the amount of overtime pay they should have received, but also an equal amount in liquidated damages. Plus, they can recover their attorney’s fees from the employer.

Employers with as few as one employee may have to pay overtime unless an exemption applies! And not all salaried employees qualify for exemptions!

The Overtime Exemptions for New York Employers webinar walks you through the various components of each of these categories of exemptions, specifically noting federal and New York State distinctions.

Learn where the duties tests differ between the FLSA and New York law. Find out what happens if an employee is exempt under one law but not the other. Get predictions on what changes may be coming up!

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January 19, 2018

Outside Sales Exemption – A Quick Guide for New York Employers

Most New York employers are subject to both federal and state minimum wage and overtime requirements. Usually, this means the employer must pay its employees at least the minimum wage for all hours worked and time-and-a-half for hours over 40 in a week. There are, however, many exceptions to these requirements. This post addresses the outside sales exemption under both the Fair Labor Standards Act (FLSA) and New York law.

Employers sometimes rely on the “outside sales” exemption to cover all categories of sales employees. But the “outside” component is critical for exemption. Sales employees who do not qualify under the outside sales exemption may still qualify for another exemption, such as the executive or administrative exemptions.

Learn more through this free webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!

FLSA Outside Sales Exemption

To qualify for the outside sales exemption under the FLSA (the federal minimum wage/overtime law):

The employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Unlike the administrative, executive, and professional exemptions, the FLSA salary requirements do not apply to the outside sales exemption.

An outside salesperson must travel to customers, usually at their places of business or homes. Selling solely by phone, mail, or the Internet does not qualify as outside sales.

“Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. Promotional work that is related to the employee’s own outside sales or solicitation efforts qualifies as exempt work.

New York Outside Sales Exemption

The FLSA and New York outside sales exemptions are very similar.

Under New York State law, employees can be exempt from minimum wage and overtime requirements if they are customarily and predominantly engaged away from the premises of the employer and not at any fixed site and location for the purpose of:

Making sales;
Selling and delivering articles or goods; or
Obtaining orders or contracts for service or for the use of facilities.

Like the FLSA, New York has no salary requirement for outside sales employees. However, New York does require that commissioned salesperson have a written agreement establishing the terms of their compensation. For outside sales employees whose primary compensation comes through a salary or hourly wage, employers still must satisfy the State’s wage notice requirements.

Summary

In the past, this exemption covered more employees who actually went “door-to-door” or at least made home sales calls. Now, since most consumer purchases occur through the Internet, the exemption it is more prevalent among business-to-business sales employees.

But remember, the outside sales exemption only applies to certain employees whose actual job situations meet the requirements! Job titles do not automatically determine exemption, nor does the fact that the employee is involved in making sales.

Employers should periodically review employees’ job duties to determine whether they qualify for exemption.

To learn more, check out my related webinar: Overtime Exemptions for New York Employers: What You Don’t Know CAN Hurt You!