1. CHAPTER 2 COMPUTING & PAYING WAGES AND SALARIES
Developed by Lisa Swallow, CPA CMA MS

2. Fair Labor Standards Act
FLSA - provides for 2 types of coverage
Enterprise Coverage
=> 2 employees engage in interstate commerce
Business has >=$500,000 annual gross sales
Includes all manufacturing companies
Includes all personal care companies
Hospitals
Nursing homes
Institutions for mentally ill
Schools
Public agencies
Interstate commerce refers to
Trade
Transportation
Communication
Among several states, between a state and outside states
Covers employees if they worked on goods moved in or produced for interstate commerce

3. Fair Labor Standards Act
Individual Coverage
Employee covered if engaged in interstate activities
Includes ‘fringe activities’
Many family businesses are exempt!
Many “nonprofits” also exempt
Interstate commerce refers to
Trade
Transportation
Communication
Among several states, between a state and outside states
Covers employees if they worked on goods moved in or produced for interstate commerce

4. FLSA & Domestic Help Domestic services
Services of a household nature
Includes nannies, gardeners, chauffeurs, etc.
Babysitters employed on regular basis
Covered by FLSA minimum & overtime wage if
work more than 8 hours/week or
earn $1000 in a calendar year
“Live-in” help need not be paid overtime
Casual babysitters, not covered
Companion for elderly or infirmed, not covered

5. Definitions Employee Common-law relationship
Performs services in a covered employment
Common-law relationship
Employer has right to control both what work is done & how it will be done
Substance of the relationship governs the status
Independent Contractor test
Free of direction & control
Paid by the job or contract
Has a personal investment (i.e. own tools)
Usually has more than one customer
Can hire and direct employees

6. Definitions Wage Salary Compensation paid to employees
Payment on hourly, weekly, or piecework basis
Salary
Payment base on biweekly, semimonthly, monthly, or annual basis

7. What is Minimum Wage?
Includes all rates of pay including, but not limited to:
Commissions
Bonuses
On-call or differential pay
FMV of lodging/meals
Exceptions to minimum wage –
FT students employed at their own university - 85%
Student learners at Vocational Technical school - 75%
Retail or farms employing FT students - 85%
Physically or mentally impaired employees with certification

8. FLSA Law on Tipped Employees
A gift or gratuity given in recognition of service performed for him/her
This is FLSA, not state law
Tipped Employee
Receives $30/month in tips regularly
Tips may be considered as part of wages
Employer may credit up to $3.02 per hour
Small Business Job Protection Act
Froze minimum tipped wages at $2.13/hour
EE still must make $5.15/hour when combining tips/wages
5.85 x 40 = $234 minimum gross
$2.13 x 40 = $85.20/week (employer must pay)
($ ) =3.72 per hour in tips
3.72x 40 = $148.80/week (must make in tips)

9. What must employer pay if tips for 40-hour work week are…
#1. Reported tips = $43
Is $ $43 > $234
No - ($ = $191) Employer must pay
#2. Reported tips = $1189
Is $ $1189 > $234
Yes so Employer pays $85.20
#3. Reported tips = $111
Is $ > $234
No - ($ = $123) Employer must pay
40 hours X $5.85/hr = $234.00
40 hours X $2.13/hr = $
Tips must be at least $3.72/hr

10. “Exempt” means exempt from overtime provisions of FLSA
Exempt vs. Nonexempt
Putting someone on salary doesn’t mean they’re exempt!!
“Exempt” means exempt from overtime provisions of FLSA
White-collar workers
Executives
Professional
Administrative
Computer professionals
Outside sales
Test of exemption:
Employee must be paid on salary basis
Employee must be paid more than$455 per week.
Must meet “primary duty” requirements (see Fig. 2-2 in text)
To be considered exempt, must be paid on a salary basis and gross at least $455/week

11. What the FLSA Does Not Cover
What the FLSA Does Not Cover
Employers are not required to
Pay extra for weekend/holiday work
Pay for holidays or vacation
Limit hours for persons 16 years of age or over
Give holidays off
Grant vacation time

12. FLSA & The 40 Hour Work Week
Established by corporate policy (for example 12:01 a.m. Saturday - 11:59 p.m. Friday)
Seven consecutive 24-hour periods
Some states require daily overtime (OT) over 8 hours (not FLSA)
FLSA sets OT at 1.5 times regular pay
Exception Hospital EE, overtime for 80+ hours in 14 days
Exception EE receiving remedial education
Exception 3 – Retail workers earning commission (special rules)
Exception 4 - Emergency public safety EE - can accumulate 320 hrs x 1.5 = hours compensatory time instead of OT
Exception 5 - EE of state or interstate governmental agency – can accumulate 160 x 1.5 = 240 hours compensatory time instead of OT

13. FLSA & The 40 Hour Work Week
FLSA & overtime pay
> 40 hours in a work week
Hours must be worked
For pay periods of 2 weeks or more, employer can give employee 1.5 hours off for every overtime hour.
Time off must be in same pay period
Applies to tipped employees at same rate

14. Hospital Employees
May have agreement for overtime for 80+ hours in 14 days
Employees must receive
OT pay for > 8 hrs per day OR
OT >80 hours in 14 days
Whichever is greater

15. Child Labor Laws FSLA restricts workers under age 18 Non-farm work
Under age 16 cannot work
In construction, mining, manufacturing
Around hazardous materials
In hazardous jobs (17 identified on list)
14-15 year olds limited
Employment in food service, retail and gasoline services
Employment cannot interfere with school, health & well-being
Work performed outside of school hours
Maximum 3-hour day, 18 hour week while school in session
Maximum 8-hour day, 40 hour week when not in session
Hours of 7 am to 7 pm only (9pm summers)

16. Violations can result in up to $10,000/offense
Child Labor Laws
Under age 16 cannot work in construction, mining, manufacturing, etc.
Under age 18 cannot work in hazardous jobs
Under 16 years old limited to employment in retail and food/gas service:
only 7 a.m. - 7 p.m. (until 9 p.m. allowed in summer)
3 hours per day hours per week – school year
8 hours per day hours per week – summer
In agricultural occupations an employee as young as 10 can work
only from 6/1 - 10/15
Hand harvest laborers outside school hours only
subject to many strict limitations
ER needs to have certificate of age on file
Violations can result in up to $10,000/offense

17. Compensable vs. Noncompensable Time
Travel (when part of principal workday) is compensable
Training (when for ER benefit/required) is compensable
Rest periods under 20 minutes are compensable
Meal periods are not considered compensable unless employee must perform some tasks while eating
On-call time is not compensable if employee can spend time as he/she chooses
Prep at work station (but not clothes changing, shower) is compensable
Work at home is compensable if nonexempt employee
Sleep time is compensable if required to be on duty less than 24 hours
Noncompensable Time :
Pay on holidays, vacation, sick, extra on weekends
Pay while waiting to check in/out of plant or for paycheck

18. Records Used for Timekeeping
FLSA requirements
Hours each employee worked each day
Hours each employee worked each workweek
Types of records
Time sheets
Time cards
Computerized time / attendance recording systems
Card-generated
Badge systems
Cardless systems using PIN
Nontraditional office environment
Touch screen technology (PC screen reads touch input)
Internet
Biometrics - computer reads eye scan, fingerprint or some other unique characteristic to ensure security

19. How Wages are Paid 1. Check 2. EFT
Many companies keep a separate operating account
Write a check from the regular account to a payroll account for net amount
Easier to reconcile when payroll checks are written against one account
2. EFT
Electronic Funds Transfer
Pay data to bank goes through ACH (Automated Clearing House)
Employees receive “stub” or statement showing gross pay and deductions and net amount deposited to account

20. Pay Periods Biweekly (26) - same hours each pay period
Semi-monthly (24) - different hours each pay period
Monthly (12) - different hours each pay period
Weekly (52) - same hours each pay period
ER can have different pay periods for different groups within same company!

21. Steps to Follow when Calculating Gross Pay
Annualize Salary
Calculate “regular” gross
Calculate hourly pay
Calculate OT rate (1.5 x hourly rate)
Add overtime pay to “regular” gross

22. Calculating Amounts assume annual salary of $35,000
Hourly rate: Overtime:
35000/52/40 = = X 1.5 =
If paid Bi-weekly
35000/26 =
If paid Semi-monthly
35000/24 =
If paid Monthly
35000/12 =
If paid Weekly
35000/52 =

23. Examples - Calculating Gross Paycheck (#1)
FACTS: Salary quoted is $1,500/month - paid weekly - 43 hours in one pay period
Annual:
1500 X 12 = 18,000
weekly gross
18000 / 52 =
regular rate
/ 40 = 8.65
OT rate
8.65 x 1.5 = 12.98
Total gross
(12.98 x 3) =

24. Practice Calculating Gross Paycheck (#2)
FACTS: Salary quoted is $2,000/month - paid
semi monthly - 4 hours OT in one pay period
Annual
2000 x 12 = 24000
semimonthly gross
24000 / 24 = 1000
regular rate
24000 / 52 / 40 = 11.54
OT rate
11.54 x 1.5 = 17.31
gross
1, = (17.31 x 4 ) = 1,069.24

25. Practice Calculating Gross Paycheck (#3)
FACTS: Salary quoted is $2,000/month for 38 hour work week - paid semimonthly.
OT - regular pay between hours/week; 1.5 after 40. Of 16 hours of OT in one pay period only 12 over 40
Annual
x 12 = 24,000.00
semimonthly gross
24,000 / 24 = 1,000.00
regular rate
24,000 / (38 x 52) = 12.15
OT rate
12.15 X 1.5 = 18.23
gross
1, (4 X 12.15) + (12 X 18.23) =
*Denominator is always number of hours in full time year - may be different between companies

26. Practice Calculating Gross Paycheck (#4)
FACTS: Salary quoted is $1,600/month for 35 hour work week -paid semimonthly. OT - regular hourly pay between hours/week; 1.5 after 40 hours. Of 16 hours of OT in one pay period, 6 hours are over 40 hours weekly
annual gross
1, X 12 = 19,200.00
semimonthly gross
19,200 / 24 =
regular rate
19,200 / (35 X 52) = 10.55
OT rate
10.55 X 1.5 = 15.83
Gross
(10.55 X 10) + (15.83 X 6) =

27. Practice Calculating Gross Paycheck (#5)
FACTS: Salary quoted is $2,200/month -
paid biweekly hours OT in one pay period
Annual
X 12 = 26,400.00
biweekly pay period
26400 / 26 = 1,015.38
regular rate
26, / 2080 = 12.69
OT rate
12.69 X 1.5 = 19.04
gross
1, (11.5 X 19.04) = 1,234.34

28. Salaried Employees - Fluctuating Workweek
Some employees may work a fluctuating schedule on a fixed salary
Not applicable to hourly employees
Employee must agree to this system
Overtime is calculated by dividing normal salary by total hours worked
Then an extra .5 rate is paid for all hours worked over 40
Not allowed in all states

29. Piece Rate
FLSA requires piecework earners to get paid for nonproductive time
Must equal minimum wage with OT calculated one of two ways:
Method 1
units produced x unit piece rate = piece rate earnings
piece rate earnings/total hours = hourly rate
hourly rate x 1/2 = OT premium
piece rate earnings + (OT premium x OT hours) = gross pay or
Method 2
(units produced in 40 hours x piece rate) +
(units produced in OT) x (1.5)(piece rate)

30. Practice Calculating Piece Rate (#1)
FACTS: 4,812 units inspected in a hour week (600 of those units produced in extra hours). Employee is paid .12/each. Calculate using both methods.
Method 1
(4812 x .12) = regular piece rate earnings
/ = hourly rate
12.22 x .5 = OT premium
(6.11 x 7.25 hrs.) = Gross earnings
Method 2
(4212 x .12) + (600 x .12 x 1.5) = Gross

31. Practice Calculating Piece Rate (#2)
Facts: Inspection rate = $.08/unit. An EE inspected 6897 u. in 43.5 hours. She inspected 423 of these in overtime. Calculate using both methods.
Method 1
(6897 units x .08) = reg. Piece earnings
/ 43.5 hrs = hourly rate
12.68 x .5 = 6.34 OT premium
(6.34 x 3.5) = Gross
Method 2
(6474 x .08) + (423 x .12) = Gross

32. Commission
Commission can be used in many combinations (with base salary or stand alone) - as long as minimum wage provisions are met
For example: Sam sold $40,000 of product. His quota is $31,500. He gets 2% in excess of quota. His annual base salary is $30,000. He gets paid biweekly - calculate gross paycheck:
30, / 26 = base
(8500 x .02) = commission
= gross

33. Other Payment Plans Special Incentive Plans Profit Sharing Plans
Different rates paid depending on whether worker fails or attains predetermined production standard
See example in text
Profit Sharing Plans
EE shares in corporate profits – receives his/her share in the form of
Cash payment
Profits distributed into retirement or savings account
Profits distributed as stock