Payroll Webinar: Paying Overtime Under the FLSA: Part 2

©2018 The Payroll Advisor
1
Paying Overtime Under the
FLSA: Part 2
Presented on Wednesday, December 5, 2018

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Our Focus For Today
©2018 The Payroll Advisor 7
 All about calculating overtime
 FLSA method vs. Alternate or commonly
understood method
 How to do the basic math for one
workweek
 How to handle when overtime and the
bonus cover multiple workweeks
 Salary nonexempt employees

Let’s Review Our Definition of
Overtime
Overtime pay under the Fair Labor
Standards Act is computed at 1 1/2
times the regular rate of pay for all
hours worked in excess of the 40 hours
in a workweek..
8

Let’s Review the Term Regular
Rate of Pay…
Computation of the hourly “regular rate of pay”
is calculated as follows:
The total remuneration for the employee (except
those excluded by law) in a workweek is divided by
the total number of hours actually worked in the
workweek.
9

Doing the Math…Following the
Steps
Total pay for workweek (total hours x file rate
plus additional pay for workweek) –
exclusions = Gross Pay
Gross Pay/total hours worked = regular rate of
pay
Regular rate of pay x .5 x hours of overtime =
premium pay for overtime
Total pay for workweek (step 1) + premium
pay for overtime (step 3) = total weekly
compensation

Can We Go Back to Step # 3 For a
Minute?
11
 Where does the x .5 come in???
 When FLSA was written everyone (DOL)
assumes the employee is paid for all time
worked at straight hours
 For example the employee is paid for 41
hours at $1.00 an hour the employee will
be paid $41
 The “new” concept of overtime was in
addition to straight time

Can We Go Back to Step # 3?
12
 Overtime was a premium added to straight
time
 The employer is expected to calculate all
the straight time first then use that to
calculate the overtime premium
 Hence .5 at the regular rate…the 1 of 1 ½
was already paid with the straight time
 All that is owed is the ½

Now an Example with
Numbers…
Example Information:
 Employee is paid an hourly
rate of $15.00
 Works 44 hours in the
workweek
 First the common method
 Then the FLSA method

The Proper or FLSA Method…
44 x $15.00 = $660.00
$660.00 ÷ 44 = $15.00
$15.00 x .5 = $7.50
4 x $7.50 = $30.00
$660.00 + $30.00 = $690.00
So what is the difference between the proper
method and the commonly understood
method of calculating overtime?

Commonly Used or Alternative
Method
40 x $15.00 = $600.00
$15.00 x 1.5 = 22.50
4 x $22.50 = $90.00
$600.00 + $90.00 = $690.00
This uses the time and a half method that most
computers use and is acceptable if the employee
does not have any additional wages that trigger
the required method—No difference. FLSA would
accept both

The Proper or FLSA Method…
16
44 x $15.00 = $660.00
$660.00 ÷ 44 = $15.00
$15.00 x .5 = $7.50
4 x $7.50 = $30.00
$660.00 + $30.00 = $690.00
So what is the difference between the proper method
and the commonly understood method of calculating
overtime?—NOTHING! BUT WITH A BONUS…

Example With Bonus
Same info except employee receives $10 bonus.
 44 x $15.00 = $660.00 + $10.00 = $670.00
 $670.00 / 44 = $15.23
 $15.23 x .5 = $7.62
 $7.62 x 4 = $30.48
 $670.00 + $30.48 = $700.48

Notice the Difference…
 Without the added bonus under the FLSA
method, both had $690 as the gross
 But when the bonus is added it goes to
$700.48 under the DLSE method but only
$700.00 under the alternate method
 $.48 difference than just adding in the $10.
 Result—Penalties, fines and interest for using
the wrong method

Let’s Do Another Example
A warehouse worker worked 44 hours last
week. In additional to his regular wage of
$10.00 an hour, he was paid $50.00 for
completing a job on time and on budget.
19

The Right Way (Using DOL OT Calculator)…

The Wrong Way…
Step 1 40 x $10.00 = $400 + $50.00 = $450.00
Step 2 $10.00 x 1.5 = $15.00
Step 3 $15.00 x 4 = $60.00
Step 4 $450.00 + $60.00 = $510.00
21

Let’s compare…
Step 1: 44 x $10.00 = $440 + $50.00 =
$490.00
Step 2: $490 divided by 44 = $11.14
Regular rate of pay
Step 3: $11.14 x .5 x 4 = $22.28
Step 4: $490.00 + $22.28 = $512.28
Step 1: 40 x $10.00 = $400 + $50.00 =
$450.00
Step 2: $10.00 x 1.5 = $15.00
Step 3: $15.00 x 4 = $60.00
Step 4: $450.00 + $60.00 = $510.00
The Right Way The Wrong Way
22

MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VA
WV
OH
MI
NY
PA
MD
DE
NJ
CT
RI
MA
ME
VT
NH
AK
HI
Follow federal definition
The States and Regular Rate of Pay
23
Use term regular rate or regular
rate of pay but does not define
May use different calculations
depending on type of payment
Defines term within the
law—matches federal
No overtime rules on state level Uses hourly rate regularly
employed or usual rate or similar
term
Specifically excludes bonuses
etc. in law
Uses minimum wage

But What if More than
One Work Week Is Involved?
When a nondiscretionary bonus covers a period of
time longer than a workweek, it must be
apportioned back over the workweeks of the
period during which it was earned. If it is not
possible or practicable to allocate the bonus on the
basis of when the bonus was actually earned, some
other reasonable or equitable method must be
adopted (for example, allocation of an equal
amount for each workweek covered by the
bonus). The employee must then receive
additional overtime pay for each workweek in
which overtime was worked during the period.
24

Let’s Do Some Math
On This One
The Facts: An employee is promised a bonus of
$1300 late in December of last year. The project
begins the first of January of this year. To earn
the bonus the employee must complete the
project by the end of the first quarter of this
year. The employee completed the project on
time and was paid the bonus the first pay
period in the second quarter. In order to
complete the project on time the employer
worked the following schedule during the
quarter in question:
25

Week #: Total Hours Worked Straight Hours Overtime Hours
1 50 40 10
2 53 40 13
3 59 40 19
4 48 40 8
5 56 40 16
6 51 40 11
7 53 40 13
8 57 40 17
9 53 40 13
10 57 40 17
11 59 40 19
12 48 40 8
13 45 40 5
Totals 689 520 169
The Employee’s Time Cards for the Period
26

The Methods We Can Use…
First Method:
 Cannot actually allocate bonus on when it was
earned due to length of time
 Can allocate over the payroll weeks in question
 This can be done by allocating the bonus to each
workweek and recalculating the overtime only.
 This method is usually used when the bonus is paid
separately from the normal payroll and the
additional overtime will be added to a payroll.
27

Example
 Divide the bonus ($1300) by the number of workweeks in
the quarter (13) for a result of $100 per workweek.
 For a week in which the affected employee worked 48
hours, the increase in the employee’s regular rate is $2.08
($100 divided by 48 hours).
 One-half of the increase ($1.04) is due for each overtime
hour worked.
 The employee is due a total of $8.32 in additional overtime
pay for that workweek, as a result of the bonus.
 The employee would receive $156.04 additional overtime
compensation for the quarter in addition to the $1300
bonus on the first payroll of the second quarter.
28

Second Method…
 It can be done by recalculating
the gross for each workweek.
 This method is used when the
additional overtime will be
combined with the bonus
payment or all are added to the
payroll.
30

Example:
Employee is paid $20 per hour. Original gross pay
included only straight time and overtime hours no
additional payments were made. In this example
the payroll department would recalculate the
gross payroll for each pay week in question to
include the $100 per week bonus. The employee
would then be due $1456.04 additional
compensation. This is the additional overtime plus
the bonus.
31

Third Method…
 Take the entire pay for the quarter for straight
time and overtime, adding in the bonus and
recalculating the wages due, subtracting what
has been paid and paying the employee the
difference as the bonus.
 Normally results in a slight overpayment to the
employee due to rounding difference. Could
be as much as $5 to $10. However, most
payroll departments prefer this method due to
the amount of time saved in performing
calculations.
34

Example
 The employee was paid $10,400 in straight time wages: 520
x $20 = $10,400. And $5070 in overtime wages for the
quarter: $20 x 1.5 x 169 = $5070. For a total gross wages of
$15,470.00. To calculate the additional overtime wages due
the employee:
 Take the total hours worked and multiply that by the hourly
rate of $20.
 Add the bonus into the total gross wages
 Divide step 2 by the total hours
 Take the calculation in step 3 and multiple by .5 then
multiple by the number of overtime hours
 Add the amount in step 4 to the gross wages in step 2
35

Here is the Math…
 Step 1: 689 x 20 = $13,780.00
 Step 2: $13,780.00 + $1,300.00 = $15,080.00
 Step 3: $15,080.00/689 = $21.89
 Step 4: $21.89 x .5 x 169 = $1,849 .71
 Step 5: $1,849 .71 + $15,080.00 = $16,929.71
Step 5 is the new amount due the employee including the
bonus of $1,300.
Now minus the original gross already paid of $15,470.00 and
that results in a payment of $1,459.71.
$1,300 of the payment is the original bonus and $159 .71 is
for the additional overtime due.
36

Why the Difference in this
Method?
As noted above this overtime due
figure is slightly higher than the other
2 due to rounding. So in this example
the employee would receive an
additional $3.67 in overtime wages.
However, common practice is to use
this method to save time in the
payroll department.
37

Multiple Rates of Pay
When 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 of
pay for that week is the
weighted average of all the
rates.
38

Example
At Secrest Corp this week Paul worked to cover
for other employees on vacation. His time card
reads as follows:
39

Step 1… Calculate the Earnings
for Each Day

Then…
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
41

Finally 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
total weekly compensation
42

Weekly Salary Basis
 If the employee is paid on a
weekly salary basis, the regular
hourly rate is reached by dividing
the salary by the number of hours
which the salary is intended to
compensate.
 If the salary covers a period longer
than a workweek, such as
biweekly, monthly, etc., it must be
converted to a weekly equivalent.
43

Fixed Work Weeks
Where employees are paid a salary for a fixed
workweek, (salary intended to cover only a specified
number of hours per week, i.e. 37 1/2 or 40) total
earnings are divided by the number of "fixed" hours
rather than the number of hours worked.
Example: Joe is hired at a salary of $500 per week.
It is understood that this salary is compensation for
a regular workweek of 35 hours or $14.29 per hour.
When overtime is worked Joe is entitled to receive
$14.29 for each of the first 40 hours and $21.44
(time and one half) for each hour thereafter.
44

Biweekly Payroll Example Fixed
Work Week
Sylvia is hired at a weekly salary
of $500 a week. The salary is
based on a fixed workweek of 40
hours. She worked 50 hours her
first week and 45 hours her
second week of a biweekly
payroll
45

The Math…
46

Fluctuating Work Weeks
Where employees are paid a salary for a
fluctuating workweek (salary intended to
compensate for an entire workweek, regardless
of the number of hours actually worked), total
earnings are divided by the number of hours
actually worked. And since straight-time
compensation has already been paid, the
employee must receive additional overtime pay
for each overtime hour worked in the workweek
at not less than one half the regular rate.
47

Example Fluctuating Work
Week
 Brenda works no more than 50 hours and is
compensated on a fluctuating workweek basis
at a weekly salary of $400 per week. During
the course of four weeks she works 40, 44, 50
and 48 hours.
 To get the regular rate of pay the total hours
are divided into the salary of $500 for each of
the four weeks.
48

Let’s Do the Math…
The regular rate of pay in each of these
workweeks is $10.00, $ 9.09, $8.00 and $8.33.
Since the straight time for all hours worked has
already been paid, only additional half time pay
is due.
49
Workweek Hours Math
1 40 $400/40 = $10.00
2 44 $400/44 = $9.09
3 50 $400/50 = $8.00
4 48 $400/48 = $8.33

Let’s Do the Math…
Brenda would be paid the following for each of
the workweeks:
 Week 1: $400.00
 Week 2: $418.18 ($9.09 x .5 x 4 = $18.18)
 Week 3: $440.00 ($8.00 x .5 x 8 = $33.36)
 Week 4: $433.36 ($8.33 x .5 x 8 = $33.36)
50

Deductions
If the employer made deductions for such
items as "board, lodging, or other
facilities' furnished to the employee, or
for union dues, savings bonds, etc., these
do not effect the regular rate of pay
computations. The employee's regular
rate of pay is computed before the
deductions are made.
51

Non-Cash Payments
Where payments are made to employees in
the form of goods or facilities that are
regarded as part of wages, the fair market
value of such good or facilities must be
included in the regular rate of pay calculation.
Example: an employer furnishes lodging to an
employee in addition to cash wages. The
reasonable cost or fair market value of the
lodging (per week) must be added to the cash
wages before the regular rate is determined.
52

Additional Resources
 www.dol.gov
 Overtime calculator:
http://www.dol.gov/elaws/otcalculator.htm
 Hours worked:
http://www.dol.gov/elaws/esa/flsa/hoursworked/default.asp
53

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Payroll Webinar: Paying Overtime Under the FLSA: Part 2

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