When you calculate overtime pay for your employees, what you’re actually doing is ensuring that your company is adhering to FLSA and overtime regulations. Overtime calculations, however, can be arduous because they’re often not as simple as multiplying the employee’s standard rate by 1.5. The basis for calculating overtime is the "regular rate" of pay under the Fair Labor Standards Act (FLSA) – a regulation that’s complex enough to trip up even those employers with the best intentions.
Fortunately, in a BLR webinar titled "Calculating Overtime: HR’s How-To Guide for FLSA Compliance," Kara E. Shea outlined some guidance on this often-perplexing topic.
FLSA and Overtime: 3 Steps to Calculating Overtime Pay Correctly
To ensure FLSA and overtime compliance, Shea outlined 3 basic steps for us to follow. Beware, however, that you must understand the overtime laws in depth before putting these steps into practice:
- Calculate the hours worked. Just as it sounds, this is the determination of how many hours the employee worked during the workweek. Where it gets complex, however, is understanding what is and what is not working time under the FLSA. This question alone is worthy of separate discussion – so be sure you understand what time you’re obligated to pay for before you even begin.
- Calculate the "regular rate" of pay. This is seemingly simple, but often is not because this rate often includes more than just the employee’s hourly rate. You must determine how much remuneration the employee received during the workweek, which requires you to understand what sorts of payments must be included in calculating the regular rate, such as bonuses (just to name one example).
- Finally, calculate the overtime rate. This will let you know how much overtime is owed. This is probably the simplest step, but don’t underestimate the importance of getting the first two steps correct before attempting the third.
To help us stay in FLSA and overtime compliance, Shea provided some further guidance on understanding each of these; we’ll look at the calculation of hours worked in more depth here.
FLSA and Overtime: Calculating Hours Worked
As we just outlined, when dealing with the FLSA and overtime pay, the first thing to get right is the calculation of how many hours the employee worked. Shea noted that this may sound simple, but it’s not always. "You have to understand how to determine whether time spent by this worker counts as compensable work time under the FLSA . . . and then, if it does count as compensable work time, you must have a method of accurately recording it."
It doesn’t matter how you do this, but you have the burden to prove these records are accurate. Here are some tips:
- Your records must capture all work time, including off site, at home, traveling, etc.
- You must count all time worked, including "work not requested but suffered or permitted" (in other words, employees must be paid if you or your supervisors knew or had reason to know work was being performed, even if outside regularly scheduled hours).
- Put your procedures in writing and have each employee sign that they understand. In addition, post the procedures somewhere conspicuous. Make sure employees understand that if they don’t follow the procedures they can be disciplined. This will help to ensure employees are entering time correctly, not over- or under-reporting.
- Have a complaint procedure in place for time-keeping issues.
- Limit access to time records, especially in terms of who can alter them. Use care in altering employee time records.
- Review your procedures often and see how they are actually working.
Even with a good system, supervisors can get you in trouble. Oftentimes, we may have a written policy but the supervisors ignore it because they are rated on their ability to control overtime. That’s why you need to review the process and remind supervisors that (1) they can be disciplined or terminated for not following procedures and (2) they can be held personally liable for wage and hour violations.
Too often, when lawsuits come in, employees claim that the records are inaccurate, i.e., "I was told to record 9 to 5 regardless of actual hours worked," or "my supervisor regularly altered the hours so there would be no overtime." To audit for these types of scenarios, look for patterns. If the records show employees clocking in at exactly 9 am every day, for example, something may be awry. You should see variations in time.
The best tracking system is only as good as the foundation. Be sure to understand the regulations and accurately track hours for:
- Meals and rest periods
- Time on the clock before and after the regular work day (when does the workday begin?)
- Idle/waiting time
- On-call time and on-call policies
- Training time
- Travel time
Each of these affect how much – and for what hours – you must pay your employees. Getting this right is the first step before you can even think about paying overtime to stay in compliance with your FLSA and overtime responsibilities. Only at this point can you move on to determining the regular rate of pay and the overtime rate.
For more information on FLSA and overtime laws, order the webinar recording. To register for a future webinar, visit http://catalog.blr.com/audio.
Attorney Kara E. Shea, a member at Miller & Martin PLLC, provides advice on issues and compliance to national, regional, and local employers of all sizes, ranging from Fortune 500 companies to small businesses in a variety of industries. She also represents employers on a variety of employment issues such as wage and hour cases, including class actions.