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Many Factors Complicate Rates of Pay, Overtime Calculations (1)

June 24, 2022, 3:11 PM

Payroll professionals should be aware of common misconceptions and exceptions when calculating the regular rates of pay and overtime for employees, a payroll professional said June 23.

Workweeks

Under the federal Fair Labor Standards Act, workweeks are a consecutive seven-day period lasting 168 hours, and nonexempt employees are entitled to overtime if they work over 40 hours in a workweek, said Laurel Serra, CPP, a director of payroll training with the APA. However, notable exceptions exist for different types of workers.

Hospitals and nursing homes can use a 14-day workweek, and employees are only entitled to overtime pay if they work over 8 hours in a day and over 80 hours during the workweek, Serra said. This method allows hospitals and nursing homes to meet their unique staffing needs, but the employer and employee must agree on using this method for overtime calculations beforehand, she said.

Other employees have fluctuating workweek schedules, or work schedules that vary from week to week. These nonexempt employees may receive a set salary regardless of how many hours they work, but payroll professionals must ensure that the salary provides a rate of pay at least equal to the applicable minimum wage rate and that overtime is given to employees that work more than 40 hours in a workweek, Serra said during the American Payroll Association’s 2022 Virtual Congress.

Rate of Pay and Overtime Calculation

While many nonexempt employees have an hourly rate of pay or a salary, some receive commissions or piecework pay, which can make rate of pay and overtime calculations more difficult, Serra said.

“Oftentimes, the problem we are faced with as a payroll practitioner is that we do not find out about the commissions until later on,” she said. “And, despite finding out about them much later on or way after the pay period, we still have to go back, recalculate those overtime premiums, and pay any amount that they were shorted.”

Two different methods exist for calculating overtime for piecework employees. Their rate of pay and overtime compensation can be calculated based on their total earnings in a pay period, or employers can pay piecework employees 1.5 times their regular piece rate for each piece made during the overtime hours, Serra said.

Payroll professionals should also be aware of any additional pay an employee may have received during a pay period that can affect their rate of pay for a given pay period, she warned. Nondiscretionary bonuses, shift differentials, and retroactive pay, for example, must be included in rate of pay and overtime calculations, while discretionary bonuses, reimbursed expenses, gifts, and paid time off are not included.

Time Off in Lieu of Overtime

Some organizations provide employees time off to offset accrued overtime, Serra said. However, private sector employees must use the time off within the same pay period that the overtime was accrued, and private sector employers must provide a period of time where employees can use their time.

“If you are a private sector employer, make sure you are taking a look at this,” she said. “If you are on a weekly pay period basis, a weekly pay period does not give you the capability to use the time in the same period.”

(Removes references to compensatory time in ninth and 10th paragraphs)

To contact the reporter on this story: Emmanuel Elone in Washington at eelone@bloombergindustry.com

To contact the editor on this story: William Dunn at wdunn@bloombergindustry.com; Jamie Rathjen at jrathjen@bloombergindustry.com