Ascentis Blog

Information to help HR and payroll managers, recruiters, and compliance officers become more effective.

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Category Archives: business practices

Overtime Rules: Understanding a 75-year-old Sentence

The federal rule for paying overtime to employees is contained in the Fair Labor Standards Act (FLSA). This comprehensive law was passed by Congress and signed into law by President Franklin D. Roosevelt on June 25, 1938. With only a few minor updates, the rule has remained the same since Oct 24, 1940. The FLSA requires employers to pay employees not less than one and one-half times the employee’s regular rate of pay for all hours worked in excess of 40 in a workweek. A one-sentence law. Pretty easy, right? Think again.

 

To put that one-sentence rule into practice as an employer in today’s world is not quite as simple as it first seems.  The main cause for confusion with the law appears to be that over the 75 years since it was written the common understanding of the words used have spread, evolved and grown, but the actual terms used in the law have not changed at all.  A perfect example is the term “regular rate of pay”.

 

If you ask someone today to define the term “regular rate of pay” they might answer “the file rate an employee is paid,” or even “the rate the employee is normally paid.” And that seems logical. Being paid a standard rate is common practice in today’s workplace, but not so much back before 1938. To ensure that the employer paid the employee correctly under the new law, the “term regular rate of pay” was introduced.  But it was never meant to be a fixed rate. Under the FLSA this term is a calculated rate that must be recalculated every time the employee is paid overtime. It includes all payments made to the employee for services including certain bonuses, commissions, shift differential and other types of similar payments.

 

Remember, the thinking at the time the FLSA was written, during the Great Depression, was that employers would hire more employees if it were more expensive to work one-man extra hours because of overtime. But the powers that be were also concerned that if overtime were based solely on a fixed hourly rate, employers would pay the lowest rate possible and then pay the worker an extra sum to make up the difference. So, in essence, the employee would not really receive overtime. But this was avoided by requiring that all payments be included when calculating overtime. The broad coverage of the term meant that employees would receive the most money for the work performed.

 

But other terms in the one-sentence law are confusing by today’s standards as well. Take the term “all hours worked.” Back in 1938 this was a simple term because employees came to work, performed the work, and went home. But unlike in 1938, today’s employees work from home, attend meetings or receive training online, work while traveling in hotel rooms and airplanes and take advantage of the flexibility of the modern century. But that does not actually change the original goal under the FLSA, it just broadens it. Employers still must determine when the employee is working and include those hours in the overtime calculation even if it is from home, a hotel room, or an airplane.

 

As we have discussed this one sentence law can be tricky to decipher but it can and must be done to ensure compliance when paying overtime.

 

– Vicki Lambert

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www.thepayrolladvisor.com

 

To watch Vicki’s first presentation in a two part series on paying overtime under the FLSA, or to register for a live presentation of part 2, visit our 2013 Webinar Directory.

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Passing the Salary Basis Test — How Hard Can That Be?

 

 

 

 

 

 

 

 

 

 

 

 

Paying an exempt employee’s salary would appear to be an easy payroll task. According FLSA rules to qualify as exempt, the employee must receive the same amount of wages week in and week out regardless of quality or quantity of work as long as they are ready, willing and able to work. This is known as the salary basis test.  So all payroll needs to do is to just input the correct salary for the appropriate payroll period and voila it’s done! Right? Unfortunately, payroll, like life, is never that simple.

 

Why is it not that simple? Exempt employees have personal lives, so their payroll never remains static. Exempt employees arrive to work late, go home early, take vacation, call in sick, run out of PTO, and take time off to handle personal matters. It is because of these factors that maintaining the salary basis test becomes complex.  In addition to the quality and quantity of work clause, to further complicate the situation, the salary basis test also requires that any adjustments to an exempt employee’s salary must be in full day increments only.

 

For example, let’s say that an exempt employee goes home sick three hours early and then calls in sick the entire next day. But the employee only has seven hours of sick leave available. Under the salary basis test the exempt employee must be paid for the full day regardless of the quality or quantity of work. So for the day the employee went home early payroll must pay the employee for the full day since partial day deductions are not permitted.  For the next day where the exempt employee was out for the full day but only has seven hours of sick leave, again the exempt employee must still be paid for the full day even though they do not have enough sick leave available to cover the full day because docking the employee for the one hour is a partial day deduction. The employer may take the sick leave away from the employee sick leave balance but it does not affect how the employee is paid.

 

If the employee takes time off for personal reasons, then the employee is not ready, willing and able to work and may be docked but again only in full day increments. For example, if the same employee leaves three hours early on Thursday and takes all of Friday off to attend their daughter’s softball tournament then that employee is not ready, willing and able to work. If the employee has used up all of their vacation time then the salary may be docked but again only for the full day missed and not for the partial day.

 

An exempt employee’s pay can also be affected by the life of the company and other external forces such as weather. Severe weather can cause a business to have to close for a day or two as can economic realities such as forced furloughs or shut downs.  These types of situations are out of the exempt employee’s control and therefore cannot affect their salary. If deductions in the salary are made for absences occasioned by the employer such as an inclement weather situation or shut down due to slow business, the exempt employee fails the salary basis test and the employer loses the exempt status for that employee for that time period.

 

– Vicki Lambert

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www.thepayrolladvisor.com

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Interpreting the Terms of Exempt Employees

 

Determining whether or not an employee can be categorized as exempt under the Fair Labor Standards Act (FLSA) is a process done daily by employers all across the United States.  But by the very nature of the rules under the FLSA that must be interpreted and followed, it can be and often is an arduous and difficult process to do correctly. And many times employers do make costly mistakes.  For example, in 2011 the U.S. Department of Labor (DOL) recovered a total of $934,551 in overtime back wages for 479 employees of a national health care company and $104,280 in civil money penalties after an investigation by the department’s Wage and Hour Division determined that the employees had been incorrectly classified as exempt under the administrative category and consequently denied compensation for all hours worked.

 

The fact that the employer must interpret the terms the DOL uses and then apply that term to the employee being categorized is one of the reasons the task of determining which employee is exempt is so complex. For example, under the four categories of exempt, executive, administrative, professional and outside sales, the term “primary duty” is used.  The term is defined as the “principal, main, major or most important duty that the employee performs”.  But the DOL is very quick to point out that the term is based on all the facts in a particular case. So what is the primary duty for one exempt employee is not the same for another exempt employee even if both are classified under the executive exemption.

 

Each category of exempt may also have its own terms that must be interpreted.  And sometimes those terms lead to other terms that need deciphering. For example under the executive category the employee must supervise “two or more other employees”.  But what exactly does the FLSA mean by “two or more other employees”?  Generally it is defined as two full-time employees or the equivalent.  So now the term “full-time” needs to be defined, which under the FLSA generally means a 40 hour week.  But what is meant by “or the equivalent”?  Basically any combination of two full time employees will be accepted.  For example the executive can supervisor one full time employee and two employees who work 20 hours a week each. To ensure that the employee is classified correctly under the executive category the employer cannot make a single mistake on any of the terms.

 

Sometimes the terms are extremely esoteric in nature.  As shown above, the term “full-time” can actually be quantified.  But what about one of the terms used to define the administrative exemption. Under the administrative exemption the employee’s primary duty must include the “exercise of discretion and independent judgment with respect to matter of significance”.  Although the FLSA gives general guidelines it does not specifically spell out what the requirement must entail.  It does not define benchmarks that must be met or job duties that must be performed. For example, “matters of significance” refers to the level of importance or consequence of the work being performed.  But it is up to the employer to take that requirement and ensure that the employee’s job duties fall within the parameters of the term. And if it doesn’t…well don’t forget the national health care company and its $1,138,831 in back wages, penalties and interest.

 

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Vicki Lambert, CPP

www.thepayrolladvisor.com

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Customer Service In the Payroll Department?

Customer service isn’t just the responsibility of a customer service representative — it’s the responsibility of everyone in the company! In her April 16th webinar, “Customer Service, Payroll Style,” Vicki Lambert, the Payroll Advisor, helps explain the role of customer service in the payroll department.

 

WHAT is customer service?

Here’s Vicki’s working definition:

 

“A policy to ensure that customers receive what they need or want in an efficient manner to ensure they return use your product or service on a repeat basis.”

 

WHO are the customers you serve?

The employees! You’ve got something they want, and they’ll come back to get it (in a very efficient manner) on a repeat basis: their paycheck!

 

WHY is customer service important t0 a payroll department?

The purpose of customer service in payroll is to create an efficient and productive department. If productivity and efficiency is a part of your payroll department, then a customer service policy actually makes your job easier — if the employees are getting their paychecks and other payroll information in a timely, orderly, and consistent fashion, then, as Vicki explains it, “It’s going to save you time, save you hassle, avoid conflicts, and helps you communicate to your customers!”

WHEN is the right time for customer service in a payroll department?

All the time, of course! Vicki goes into detail about many different situations that call for exceptional customer service, but here’s one example:

 

Phone Calls

The little things can save you time!

 

HOW should you implement a customer service policy in your payroll department?

Vicki suggests handling the area that you feel you’re weakest in first, and then filing on down the line. Perhaps your email communication is lacking the service you feel is up to par? Attack that first. Put a plan into action amongst all employees in your department: maybe something like answering ALL emails within 12 hours of their arrival. After you’ve found that has begun happening consistently, move on to the next item.

 

If you’d like to watch all of Vicki’s presentation from April 16th, you can watch it, and even download the slides from the show HERE.

 

Ascentis offers payroll and HR webinars like these on a weekly basis! Visit the 2013 Ascentis University Webinar Directory to watch past webinars or register for future ones!

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