Overtime pay has been in the news a lot lately because of upcoming changes in the income threshold for exempt status. Those changes take effect in December. But even as employers are gearing up for that development, many are getting tripped up by long-standing overtime pay rules. This article discusses some recent examples.

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Overtime Pay Rules: Avoid Making Costly
Wrong Assumptions

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Sometimes employers try to make logical assumptions about the way
government regulations work. Unfortunately, doing that without checking the
fine print can be a prescription for trouble.
Here are some real-life scenarios that probably made sense to the employers
at the time. But when put to the test, the Department of Labor (DOL) Wage
and Hour Division saw matters differently, and penalized the companies.

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Case #1. Not paying employees overtime when their average weekly hours
worked over a two-week period didn't exceed 40.
A Tampa manufacturer paid employees on a biweekly basis, and didn't pay
overtime if total hours worked during each pay period didn't exceed 80. But
under the Fair Labor Standards Act (FLSA), if an employee worked 50 hours in
one week and 30 in the other week, he or she is still entitled to 10 hours of
overtime pay for the 50-hour week, regardless of how many the employee
worked in the second half of the pay period.
The company was also cited for requiring employees to "perform various
tasks and attend meetings for as long as 30 minutes each day" before or after
they had punched in or out. That time should also have been compensated
and counted towards employees' overtime pay eligibility.

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Case #2. "Banking" overtime hours for future compensation.
A Minnesota sheet metal fabricator had a policy somewhat similar to the
Tampa company, although more accounting was involved. When employees
worked more than 40 hours in a week, the excess hours were "banked" for
payment in a subsequent pay period when total hours wouldn't exceed 40.
This was described by the investigator as a "common practice," albeit illegal.

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Case #3. Counting separately, for overtime obligation and calculation
purposes, hours worked by an employee at two distinct jobs at the same
company at different pay rates.
Employees at an Oklahoma City restaurant were paid at one hourly rate as
servers, and another rate for bussing tables. The restaurant was counting
hours worked at those different jobs separately, and although some
employees worked more than 40 hours a week combining the two jobs, hours
worked at each distinct job never exceeded 40.
The restaurant had to pay employees $26,243 in unpaid overtime for its
failure to count total hours worked.

6. Weighted Average Wage
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When two different wage rates are involved, as in Case #3, calculating
overtime obligations is done by using each employee's weighted average
wage rate. Here's an example of finding the weighted average rate. In this
example, an employee works for 30 hours at $15 per hour, and another 20
hours at $10 per hour.
• 30 hours times $15 equals $450, plus 20 hours times $10 equals $200, for
a total of $650. $650 divided by total hours worked (50) equals $13 per
hour, weighted average rate.
• Once you have that rate, calculating the overtime is a simple matter of
multiplying the rate by 1.5: $13 per hour times 1.5 equals $19.50 per
hour.
• This employee worked 50 hours, consisting of 40 straight-time hours and
10 overtime hours. His overtime pay therefore is 10 hour times $19.50
per hour which equals $195 overtime pay.

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In addition to the previous scenarios, another issue employers often run up
against, according to the DOL, arises when employees are paid a fixed lump
sum to compensate for overtime work. This is problematic even if the amount
paid winds up being more than your obligation would've been had you
calculated overtime pay in the required manner. "A lump sum paid for work
during overtime hours without regard to the number of the overtime hours
worked does not qualify," states the DOL.
Here are some additional fine points in determining overtime pay:

8. Elements of a Wage
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The calculation of an employee's hourly wage for purposes of overtime rate
calculation can include earnings from piece-rate pay, commissions, salary, "or
some other basis." In other words, all earnings are thrown into the mix. So,
too, are noncash payments "made in the form of goods or facilities based on
the reasonable cost to the employer or fair value of such goods or facilities.“
Payments excluded from that mix include pay for expenses incurred on the
employer's behalf, discretionary bonuses, premium payments for overtime
work or work on weekends and holidays, and payments for occasional periods
when no work is performed due to vacation, holidays or illness.
Paying employees a fixed salary with the stated expectation that the job will
consume 45 hours a week doesn't exempt an employer from paying overtime.
In such a scenario, when the weekly salary was, for example, $405, you'd
need to first calculate the hourly rate:

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• $405 divided by 45 hours equals $9 per hour.
• Then, determine the overtime rate by multiplying the hourly rate by 1.5.
• $9 times 1.5 equals $13.50.
• Subtract the base hourly rate from the overtime rate. $13.50 minus $9
equals $4.50.
• Then, multiply the hours worked in excess of 40 by the difference of
$4.50.
• Five hours time $4.50 equals $22.50 of additional pay to be added to the
salary.
• The reason you wouldn't pay time-and-a-half ($13.50) for those extra five
hours is that the base wage for those extra hours is already built into the
salary.

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Finally, employees cannot waive their right to overtime pay. And even if you
have a policy stating that you won't pay employees if they work overtime, or
do so without express authorization, that will "not impair the employee's right
to compensation for compensable overtime hours that are worked," the DOL
states.
The bottom line is, it's up to you to take reasonable precautions to ensure
that the tasks you ask and expect employees to perform don't lead employees
to working overtime to complete them, or else be prepared to pay overtime.

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