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Employers must pay wages in cash or its equivalent, and direct deposit is continually gaining popularity as a convenient method for paying wages. The payment of wages is regulated by federal and state law. There is no federal law that sets out how often or in what form employers must pay wages to employees. State laws regulate how frequently employees must be paid. Many states have laws regarding the payment of wages upon the termination of employment, including accrued vacation, and these rules often differ depending on whether the termination is voluntary or involuntary. If there is a dispute about wages, the employer must pay the employee what it concedes is due. The employee may file a wage claim with the commissioner of Labor to collect any remaining wages he or she believes are owed.
Please see the state Paychecks section.
According to federal Fair Labor Standards Act (FLSA), a workweek is a period of 168 hours during seven consecutive 24-hour periods. A workweek may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged.
Virtually all states regulate how frequently employers must pay employees their wages. State laws also specify the length of time that may elapse between the end of the pay period and payday. Employers in some states are required to notify their employees in advance of regularly scheduled paydays. In addition, some state laws specify when to pay employees who are absent on payday and when the regular payday falls on a holiday.
The DOL regulations interpreting the FLSA state that employers must pay their employees in cash or its equivalent (negotiable instrument). Without further guidance, employers should use reasonable judgment when deciding how to pay employees and use the general definition of negotiable instrument.
Direct deposit and payroll cards have become increasingly popular with some employers, financial institutions, and payroll service providers. Employers may not require that their employees receive their wages by electronic transfer to a payroll card account. An employer may, however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means. Permissible alternative wage payment methods are governed by state law but may include direct deposit to an account of the employee’s choosing, a paper check, or cash. The protections in Regulation E for consumers who receive wages on a payroll card are similar to, with a few exceptions, protections available to consumers who receive their wages by direct deposit.
Giving paycheck to another individual. Employees who are absent on payday will sometimes ask a friend or relative to pick up their paychecks for them. Although there is no specific legal prohibition against this practice, the law requires the employer to pay the employee. If the relative or friend steals the check, the employer must still pay the employee. Employers that engage in this practice should be sure to get identification and a signed receipt.
Keeping track of employee working hours is not an optional chore. The FLSA and numerous other federal and state laws require employers to keep records of hours worked, wages paid, and other conditions of employment. Beyond the law, it is impossible to run a successful business without keeping track of employee working hours. The FLSA requires that time records show the date and time a worker's workweek starts, the number of hours worked each day, and the total hours worked during the week. For many business reasons, employers need to keep thorough, accurate records of all hours worked, including starting and quitting times for each employee. According to DOL, employers may use any timekeeping method they choose. For example, they may use a time clock, badge reader, hand scanner, have a timekeeper keep track of employee's work hours, or tell their workers to write their own times on the records. Any timekeeping plan is acceptable as long as it is complete and accurate.
Employees paid either partially or solely on a commission basis must receive at least the minimum wage for weeks in which their earnings would otherwise fall short of the minimum wage because of low commissions. As with piece rate payments, when employers are forced to make up the difference between an employee’s earnings and the minimum wage, they cannot later recover any part of that payment from the employee’s earnings in weeks when his or her commissions exceed the minimum wage.
Employers sometimes assume that sales employees who are paid partially or solely on a commissioned basis are exempt from the recordkeeping, minimum wage, and overtime requirements of the FLSA. This is a fallacy. Certain commissioned employees may be exempt under the retail sales or outside sales exemptions from the FLSA. However, certain criteria must be met for these exemptions to apply, and for the retail sales exemption, time records must be kept, regardless. Many types of commissioned sales positions fall under neither of these exemptions and are subject to the recordkeeping, minimum wage, and overtime provisions of the FLSA.
Commissions and overtime. The FLSA does not require that overtime be paid weekly. The general rule is that overtime pay earned in a particular workweek must be paid on the regular payday for the period in which the workweek ends. If the amount of overtime owed cannot be determined until sometime after the regular pay period, the employer must pay the overtime compensation as soon as is practicable. An example of that would be if an employee later receives commissions that must be included in calculating his or her regular rate of pay.
Commissions must be included in total remuneration, regardless of the basis on which they are calculated and whether they are the sole source of income or paid in addition to a guaranteed salary or hourly rate. The fact that commissions are paid on some other basis than weekly or that payment is delayed for a time past the employer’s normal payday does not excuse the employer from including them in the employee’s regular rate. Note that, as a practical matter, most commissions are calculated on the basis of periods of time (for instance, months and quarters) that are not neatly divided into equal 7-day FLSA workweeks.
Employers may have to retroactively calculate the regular rate and overtime owed for commissions, bonuses, or other forms of compensation that are paid irregularly or cannot be identified with a particular workweek. If an employer does not know the amount of a commission or bonus until the end of the month, quarter, or even year, it may temporarily disregard them in making weekly overtime pay calculations. However, once the payment is made, the employer must retroactively calculate and pay any overtime owed for those weeks. It can be issued as a separate check or included in the employee’s next paycheck or a bonus check.
Commissions must be included in total remuneration, regardless of the basis on which they are calculated or whether they are the employee’s sole source of income or paid in addition to a guaranteed salary or hourly rate.
When an employee’s pay is increased by bonuses, commissions, or other forms of additional compensation, his or her regular and overtime rates of pay are also increased. The following calculations are used:
• Divide the employee’s total earnings for the week—including bonuses, commissions, and so on—by the number of hours worked to determine the regular rate of pay for the week.
• Multiply the regular rate by 1.5 to determine the employee’s overtime rate for the week.
• Multiply the regular rate by 40 nonovertime hours; multiply the overtime rate by the number of overtime hours worked, and then add the two totals to determine total compensation owed for the week, including overtime; or
• Multiply the regular rate by the total number of hours worked, including overtime; then multiply one-half the regular rate by the number of overtime hours worked, and add the two totals to determine compensation owed for the week, including overtime. This should be the same result as reached under the method described in the third bullet point, above.
If a monthly bonus is paid at the end of the month but the employee was paid weekly, the employer must apportion the bonus among the workweeks. For each week in which the employee earned some portion of the bonus, the employer must then:
• Recalculate the employee’s regular rate of pay with the commission added in;
• Subtract the original rate of pay from the adjusted rate of pay (to find out how much it was increased by the bonus or commission); and
• Pay the employee one-half the amount of the increase for each overtime hour worked in that week.
If it is impossible to attribute bonuses and commissions to the actual week in which they were earned, some other reasonable and equitable method of allocation must be adopted. For example, it may be reasonable and equitable to assume that the employee earned an equal amount of bonuses or commissions during each week of the pay period. It is generally not acceptable to simply attribute a commission or bonus earned over time to the single workweek in which it is calculated and/or paid.
Example 1. At the end of December 2014, Robert received a $600 longevity payment based on his years of continuous service with the company. The payment was made pursuant to a long-standing policy set forth in the company’s employee handbook. During the year, Robert worked 2,000 regular hours and 500 overtime hours, for a total of 2,500 hours. He was paid his regular hourly rate and an appropriately calculated overtime rate for all those hours. However, when he receives the longevity bonus, he is entitled to receive additional overtime compensation as follows:
• The employer must adjust his regular rate, retroactively, by $.24 per hour ($600÷2,500 hours).
• This means he is entitled to an additional $.12 ($.24 x .5) for each overtime hour worked during the year.
• He is entitled to an additional $60 in overtime pay ($.12 x 500 overtime hours).
• The total payment owed to Robert is $660 (the amount of his longevity pay plus additional overtime owed).
If an employee receives a weekly commission, it is treated the same as a bonus for the purpose of calculating overtime owed for the week. The commission is added to the employee’s hourly earnings for the workweek, and the total is divided by the total number of hours worked to obtain the employee’s regular hourly rate. The employee must then be paid the overtime rate of one and one-half times the regular rate for each overtime hour worked that week.
Example 2. Zack is a nonexempt inside sales employee. He is paid $15 per hour, plus commissions totaling 10 percent of any sale made during a workweek. During a workweek, he works 50 hours and earns $200 in commissions. His compensation is calculated as follows: First, take his total earnings for the week ($750 in hourly pay ($15 x 50) plus the $200 bonus, totaling $950) and divide that figure by the number of hours worked (50) to determine the adjusted regular rate, which is $19. Zack is thus owed $19 per hour for all 50 hours worked, plus an additional $9.50 (one-half of $19) for the 10 overtime hours, or $1,045 in total compensation for the week. This amount incorporates the hourly pay, the commission, and overtime at the correct rate.
Many states also specify when employers must pay employees who leave the company. Often, the statutes distinguish between voluntary and involuntary termination. Under the most common provision, employees who are fired or laid off must be paid just after termination; employees who resign must wait until the next regular payday. However, some state laws provide that employees who give their employers sufficient advance notice of their intention to resign are entitled to receive their pay on their final day of work. Some states require that, in addition to wages, employers pay terminating employees for accrued vacation time.
Please see the state Paychecks section.
In case of wage disputes, employers must pay the wages it concedes are due. Employees may file a wage claim with the Commissioner of Labor to collect the rest. States may have their own laws on wage disputes.
Please see the state Paychecks section.
Both federal and state laws regulate payroll recordkeeping. Many states require employers to notify employees of all earnings and deductions for each pay period. The FLSA requires that employers keep certain information on file for each person on the payroll.
Exempt and nonexempt. The following information must be kept for both exempt and nonexempt personnel:
• Employee's full name, number, or identifying symbol (company ID number or Social Security number)
• Home address, including ZIP code
• Date of birth, if the employee is under the age of 19
• Sex, and occupation in which employed
• Time and day of week on which workweek begins
• Total wages paid each pay period
• Date of payment and the pay period covered by the payment
• Retroactive wage payment under government supervision
Nonexempt only. The following additional information must also be kept for nonexempt personnel only:
• For any week in which overtime pay is due, regular hourly rate of pay, the basis on which wages are paid, and regular rate exclusions
• Hours worked each workday and each workweek
• Total daily or weekly straight time earnings or wages
• Total premium pay for overtime hours
• Total additions to or deductions from wages paid in each pay period
• Factors other than gender that are the basis for payment of any wage differential to employees of differing sexes
Place of records. Employers must keep records safe and accessible at the place or places of employment, or at one or more established central recordkeeping offices where the records are customarily maintained. Where the records are maintained at a central recordkeeping office, other than in the place or places of employment, the records must be made available within 72 hours following notice from an administrator of the Department of Labor or a duly authorized and designated representative.
Inspection of records. All records must be available for inspection and transcription by an administrator of the Department of Labor or a duly authorized and designated representative.
Employers must display an official poster outlining the provisions of the Act, available at no cost from local offices of the Wage and Hour Division and toll-free, by calling (866) 4-US-WAGE (866-487-9243). This poster is also available electronically for downloading and printing at DOL's website at http://www.dol.gov.
For additional information, employers may contact:
U.S. Department of Labor
Frances Perkins Building
200 Constitution Avenue, NW
Washington, DC 20210
866-487-9243
Last updated on June 29, 2015.
Related Topics:
National
Employers must pay wages in cash or its equivalent, and direct deposit is continually gaining popularity as a convenient method for paying wages. The payment of wages is regulated by federal and state law. There is no federal law that sets out how often or in what form employers must pay wages to employees. State laws regulate how frequently employees must be paid. Many states have laws regarding the payment of wages upon the termination of employment, including accrued vacation, and these rules often differ depending on whether the termination is voluntary or involuntary. If there is a dispute about wages, the employer must pay the employee what it concedes is due. The employee may file a wage claim with the commissioner of Labor to collect any remaining wages he or she believes are owed.
Please see the state Paychecks section.
According to federal Fair Labor Standards Act (FLSA), a workweek is a period of 168 hours during seven consecutive 24-hour periods. A workweek may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged.
Virtually all states regulate how frequently employers must pay employees their wages. State laws also specify the length of time that may elapse between the end of the pay period and payday. Employers in some states are required to notify their employees in advance of regularly scheduled paydays. In addition, some state laws specify when to pay employees who are absent on payday and when the regular payday falls on a holiday.
The DOL regulations interpreting the FLSA state that employers must pay their employees in cash or its equivalent (negotiable instrument). Without further guidance, employers should use reasonable judgment when deciding how to pay employees and use the general definition of negotiable instrument.
Direct deposit and payroll cards have become increasingly popular with some employers, financial institutions, and payroll service providers. Employers may not require that their employees receive their wages by electronic transfer to a payroll card account. An employer may, however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means. Permissible alternative wage payment methods are governed by state law but may include direct deposit to an account of the employee’s choosing, a paper check, or cash. The protections in Regulation E for consumers who receive wages on a payroll card are similar to, with a few exceptions, protections available to consumers who receive their wages by direct deposit.
Giving paycheck to another individual. Employees who are absent on payday will sometimes ask a friend or relative to pick up their paychecks for them. Although there is no specific legal prohibition against this practice, the law requires the employer to pay the employee. If the relative or friend steals the check, the employer must still pay the employee. Employers that engage in this practice should be sure to get identification and a signed receipt.
Keeping track of employee working hours is not an optional chore. The FLSA and numerous other federal and state laws require employers to keep records of hours worked, wages paid, and other conditions of employment. Beyond the law, it is impossible to run a successful business without keeping track of employee working hours. The FLSA requires that time records show the date and time a worker's workweek starts, the number of hours worked each day, and the total hours worked during the week. For many business reasons, employers need to keep thorough, accurate records of all hours worked, including starting and quitting times for each employee. According to DOL, employers may use any timekeeping method they choose. For example, they may use a time clock, badge reader, hand scanner, have a timekeeper keep track of employee's work hours, or tell their workers to write their own times on the records. Any timekeeping plan is acceptable as long as it is complete and accurate.
Employees paid either partially or solely on a commission basis must receive at least the minimum wage for weeks in which their earnings would otherwise fall short of the minimum wage because of low commissions. As with piece rate payments, when employers are forced to make up the difference between an employee’s earnings and the minimum wage, they cannot later recover any part of that payment from the employee’s earnings in weeks when his or her commissions exceed the minimum wage.
Employers sometimes assume that sales employees who are paid partially or solely on a commissioned basis are exempt from the recordkeeping, minimum wage, and overtime requirements of the FLSA. This is a fallacy. Certain commissioned employees may be exempt under the retail sales or outside sales exemptions from the FLSA. However, certain criteria must be met for these exemptions to apply, and for the retail sales exemption, time records must be kept, regardless. Many types of commissioned sales positions fall under neither of these exemptions and are subject to the recordkeeping, minimum wage, and overtime provisions of the FLSA.
Commissions and overtime. The FLSA does not require that overtime be paid weekly. The general rule is that overtime pay earned in a particular workweek must be paid on the regular payday for the period in which the workweek ends. If the amount of overtime owed cannot be determined until sometime after the regular pay period, the employer must pay the overtime compensation as soon as is practicable. An example of that would be if an employee later receives commissions that must be included in calculating his or her regular rate of pay.
Commissions must be included in total remuneration, regardless of the basis on which they are calculated and whether they are the sole source of income or paid in addition to a guaranteed salary or hourly rate. The fact that commissions are paid on some other basis than weekly or that payment is delayed for a time past the employer’s normal payday does not excuse the employer from including them in the employee’s regular rate. Note that, as a practical matter, most commissions are calculated on the basis of periods of time (for instance, months and quarters) that are not neatly divided into equal 7-day FLSA workweeks.
Employers may have to retroactively calculate the regular rate and overtime owed for commissions, bonuses, or other forms of compensation that are paid irregularly or cannot be identified with a particular workweek. If an employer does not know the amount of a commission or bonus until the end of the month, quarter, or even year, it may temporarily disregard them in making weekly overtime pay calculations. However, once the payment is made, the employer must retroactively calculate and pay any overtime owed for those weeks. It can be issued as a separate check or included in the employee’s next paycheck or a bonus check.
Commissions must be included in total remuneration, regardless of the basis on which they are calculated or whether they are the employee’s sole source of income or paid in addition to a guaranteed salary or hourly rate.
When an employee’s pay is increased by bonuses, commissions, or other forms of additional compensation, his or her regular and overtime rates of pay are also increased. The following calculations are used:
• Divide the employee’s total earnings for the week—including bonuses, commissions, and so on—by the number of hours worked to determine the regular rate of pay for the week.
• Multiply the regular rate by 1.5 to determine the employee’s overtime rate for the week.
• Multiply the regular rate by 40 nonovertime hours; multiply the overtime rate by the number of overtime hours worked, and then add the two totals to determine total compensation owed for the week, including overtime; or
• Multiply the regular rate by the total number of hours worked, including overtime; then multiply one-half the regular rate by the number of overtime hours worked, and add the two totals to determine compensation owed for the week, including overtime. This should be the same result as reached under the method described in the third bullet point, above.
If a monthly bonus is paid at the end of the month but the employee was paid weekly, the employer must apportion the bonus among the workweeks. For each week in which the employee earned some portion of the bonus, the employer must then:
• Recalculate the employee’s regular rate of pay with the commission added in;
• Subtract the original rate of pay from the adjusted rate of pay (to find out how much it was increased by the bonus or commission); and
• Pay the employee one-half the amount of the increase for each overtime hour worked in that week.
If it is impossible to attribute bonuses and commissions to the actual week in which they were earned, some other reasonable and equitable method of allocation must be adopted. For example, it may be reasonable and equitable to assume that the employee earned an equal amount of bonuses or commissions during each week of the pay period. It is generally not acceptable to simply attribute a commission or bonus earned over time to the single workweek in which it is calculated and/or paid.
Example 1. At the end of December 2014, Robert received a $600 longevity payment based on his years of continuous service with the company. The payment was made pursuant to a long-standing policy set forth in the company’s employee handbook. During the year, Robert worked 2,000 regular hours and 500 overtime hours, for a total of 2,500 hours. He was paid his regular hourly rate and an appropriately calculated overtime rate for all those hours. However, when he receives the longevity bonus, he is entitled to receive additional overtime compensation as follows:
• The employer must adjust his regular rate, retroactively, by $.24 per hour ($600÷2,500 hours).
• This means he is entitled to an additional $.12 ($.24 x .5) for each overtime hour worked during the year.
• He is entitled to an additional $60 in overtime pay ($.12 x 500 overtime hours).
• The total payment owed to Robert is $660 (the amount of his longevity pay plus additional overtime owed).
If an employee receives a weekly commission, it is treated the same as a bonus for the purpose of calculating overtime owed for the week. The commission is added to the employee’s hourly earnings for the workweek, and the total is divided by the total number of hours worked to obtain the employee’s regular hourly rate. The employee must then be paid the overtime rate of one and one-half times the regular rate for each overtime hour worked that week.
Example 2. Zack is a nonexempt inside sales employee. He is paid $15 per hour, plus commissions totaling 10 percent of any sale made during a workweek. During a workweek, he works 50 hours and earns $200 in commissions. His compensation is calculated as follows: First, take his total earnings for the week ($750 in hourly pay ($15 x 50) plus the $200 bonus, totaling $950) and divide that figure by the number of hours worked (50) to determine the adjusted regular rate, which is $19. Zack is thus owed $19 per hour for all 50 hours worked, plus an additional $9.50 (one-half of $19) for the 10 overtime hours, or $1,045 in total compensation for the week. This amount incorporates the hourly pay, the commission, and overtime at the correct rate.
Many states also specify when employers must pay employees who leave the company. Often, the statutes distinguish between voluntary and involuntary termination. Under the most common provision, employees who are fired or laid off must be paid just after termination; employees who resign must wait until the next regular payday. However, some state laws provide that employees who give their employers sufficient advance notice of their intention to resign are entitled to receive their pay on their final day of work. Some states require that, in addition to wages, employers pay terminating employees for accrued vacation time.
Please see the state Paychecks section.
In case of wage disputes, employers must pay the wages it concedes are due. Employees may file a wage claim with the Commissioner of Labor to collect the rest. States may have their own laws on wage disputes.
Please see the state Paychecks section.
Both federal and state laws regulate payroll recordkeeping. Many states require employers to notify employees of all earnings and deductions for each pay period. The FLSA requires that employers keep certain information on file for each person on the payroll.
Exempt and nonexempt. The following information must be kept for both exempt and nonexempt personnel:
• Employee's full name, number, or identifying symbol (company ID number or Social Security number)
• Home address, including ZIP code
• Date of birth, if the employee is under the age of 19
• Sex, and occupation in which employed
• Time and day of week on which workweek begins
• Total wages paid each pay period
• Date of payment and the pay period covered by the payment
• Retroactive wage payment under government supervision
Nonexempt only. The following additional information must also be kept for nonexempt personnel only:
• For any week in which overtime pay is due, regular hourly rate of pay, the basis on which wages are paid, and regular rate exclusions
• Hours worked each workday and each workweek
• Total daily or weekly straight time earnings or wages
• Total premium pay for overtime hours
• Total additions to or deductions from wages paid in each pay period
• Factors other than gender that are the basis for payment of any wage differential to employees of differing sexes
Place of records. Employers must keep records safe and accessible at the place or places of employment, or at one or more established central recordkeeping offices where the records are customarily maintained. Where the records are maintained at a central recordkeeping office, other than in the place or places of employment, the records must be made available within 72 hours following notice from an administrator of the Department of Labor or a duly authorized and designated representative.
Inspection of records. All records must be available for inspection and transcription by an administrator of the Department of Labor or a duly authorized and designated representative.
Employers must display an official poster outlining the provisions of the Act, available at no cost from local offices of the Wage and Hour Division and toll-free, by calling (866) 4-US-WAGE (866-487-9243). This poster is also available electronically for downloading and printing at DOL's website at http://www.dol.gov.
For additional information, employers may contact:
U.S. Department of Labor
Frances Perkins Building
200 Constitution Avenue, NW
Washington, DC 20210
866-487-9243
Last updated on June 29, 2015.
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