1. COMPUTING WAGES & SALARIES
CHAPTER 2
COMPUTING WAGES & SALARIES

2. Fair Labor Standards Act (FLSA)
Federal Wage & Hour Law provides for
two types of coverage
Enterprise coverage includes all EE if
Two or more work in interstate commerce and
$500,000 or more annual gross sales
Plus many nonprofits (schools, public agencies, etc.) OR
Individual employee coverage
EE whose company may not meet enterprise coverage, but are in a fringe occupation
For example: drive for fleet that transports goods, but annual revenues = $225,000
Many family businesses are exempt!

3. Employee & Employer Defined
An employer is an individual who “acts directly/indirectly in the interest of an employer” in relation to an employee
An individual is an employee if he/she performs services in a covered employment
Common-law
IRS 24-factor test:
Behavioral control
Financial control
Relationship between two parties
Statutory nonemployees considered unemployed
Direct sellers and licensed real estate agents

4. FLSA & Domestics
Domestic help includes nannies, gardeners, chauffeurs, etc.
These employees must earn minimum wage and overtime if:
Work more than 8 hours/week or if
Earn at least $1,000 in a calendar year
Live in domestics need not be paid overtime

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

6. Minimum Wage vs. Living Wage
$6.55 until July 24, 2009 then to
$7.25 (This text uses $7.25 in all calculations!)
Living wage
100+ cities have local laws requiring Employers that do business with government to pay a wage a “living wage”
Attempts to keep working poor’s wages on track with cost of living

8. Tipped Employees
“Tipped employee” regularly averages $30/month in tips
Small Business Job Protection Act froze minimum tipped wages at $2.13/hour,
EE still must make $5.85/hour when combining tips/wages (7.25 x 40 = $290 minimum weekly gross)
Examples of tips received for 40-hour work week
#1. Reported tips = $43
Is $85.20* (minimum tipped wage) + $43 > $290
No - ($ = $247) so ER must pay additional wages
#2. Reported tips = $1189
Is $ $1189 > $290
Yes - so ER pays $85.20 wages
#3. Reported tips = $111
Is $ > $290
No - ($ = $179) so ER must pay additional wages
*40 hours x $2.13/hour = $85.20

9. Tipped Employee Rules
Credit card tips must be paid out to the employee by the next payday
If employee works more than one job, tip credit can only be applied to job that qualifies as “tipped”
If a state’s tip credit differs from the federal tip credit, employer must calculate and pay their employees the higher cash wage
Tip credit is the same in overtime hours ($5.12 / hour)

10. 40 Hour Work Week Established by corporate policy
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
FLSA sets OT at 1.5 times regular pay
Exception 1 - Hospital EE, overtime for 80+ hours in 14 days or over 8 hours in a day
Exception 2 - Retail workers earning commission (special rules)
Exception 3 - Emergency public safety EE
Can accumulate 320 hours x 1.5 = 480 hours compensatory time instead of OT
Exception 4 - EE of state or interstate governmental agency
Can accumulate 160 hours x 1.5 = 240 hours compensatory time instead of OT

11. Exempt vs. Nonexempt
“Exempt” means exempt from overtime provisions of FLSA
White-collar workers
Executives
Professional
Administrative
Highly compensated employees
Computer professionals
Outside sales (no salary test for this category)
Test of exemption
Employee must be paid on salary basis
See Figure 2-2 in text - certain “primary duty” requirements must be met
Blue collar workers are always entitled to overtime pay
Putting someone on salary
doesn’t mean he/she is exempt!!
To be considered exempt, must be paid at least $455/week

12. Child Labor Restrictions
Child Labor Restrictions
Minimum wage for most jobs is 16
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 - 18 hours per week – school year
8 hours per day - 40 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 and/or prison time up to 6 months

13. Equal Pay Act Amended the FLSA
Requires men and women performing equal jobs receive equal pay
Applies to white-collar workers and outside salespeople as well as nonexempt workers

14. Child Labor Restrictions
Minimum age for most jobs is 16
Under age 18 cannot work in hazardous jobs
Employees age 16 and 17 may work unlimited number of hours each week in nonhazardous 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 - 18 hours per week – school year
8 hours per day - 40 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 – can’t discharge an
EE whom has filed a wage-hour complaint!

15. 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
Grant sick leave

16. Determining Employee’s Work Time
Prep at work station (but not clothes changing, shower) is principal activity
Travel (when part of principal workday) is compensable
On call time is not principal activity if employee can spend time as he/she chooses
Rest periods under 20 minutes are principal activities (can’t make EE “check out”)
Meal periods are not compensable time unless employee must perform some tasks while eating – generally 30 minutes or longer
Work at home is principal activity if nonexempt employee
Sleep time is principal activity if required to be on duty less than 24 hours
Training (when for ER benefit/required) is compensable

17. Non-compensable Activities
Preliminary and postliminary activities
Need not be counted unless customary or contractual
For example checking in/out of plant
Absences due to illness
Tardiness may result in “docked” time, based upon system in place
Must be paid for fractional parts of an hour

18. Timekeeping FLSA requires employers to retain time/pay records
FLSA requires employers to retain time/pay records
Employer in traditional office environment can use
Time sheet
Time cards
Computerized time/attendance records
Card-generated systems (computerized totals)
Badge systems (microchips or bar codes)
Cardless/badgeless system - EE enters PIN
PC-based system
Next generation technology
Touch screen (PC screen reads touch input)
Internet; wireless transmission (cell phones, Personal Digital Assistants)
Biometrics – unique characteristic such as iris scan or whole face

19. Pay Periods – Methods of Computing Wages/Salaries
Pay Periods – Methods of Computing Wages/Salaries
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!

20. Calculating Overtime Pay
There are two methods
Most common method
Calculate gross pay (40 hours x regular rate)
OT rate then calculated by multiplying 1.5 x employee’s regular rate
Other method
Calculate gross pay including OT hours (total hours x regular rate)
Then calculate an overtime premium
Hourly rate x ½ = overtime premium
These methods result in same total gross pay!

21. Steps to Follow When Converting Period Wage Rates to Hourly Rates
Annualize salary
Calculate “regular” gross
Calculate hourly pay
Calculate overtime (OT) rate (1.5 x hourly rate)
Add OT pay to “regular” gross

22. Example #1 - Calculating Gross Paycheck
FACTS: Salary quoted is $1,500/month - paid weekly - 43 hours in one pay period
$1,500 x 12 = $18,000 annual
$18,000/52 = $ weekly gross
$18,000/2,080 hours = $8.65 regular rate
$8.65 x 1.5 = $12.98 OT rate
($12.98 x 3) + $ = $ gross

23. Example #2 - Calculating Gross Paycheck
FACTS: Salary quoted is $2,000/month – paid semimonthly - 4 hours OT in one pay period
$2,000 x 12 = $24,000 annual
$24,000/24 = $1,000 semimonthly gross
$24,000/2,080 = $11.54 regular rate
$11.54 x 1.5 = $17.31 OT rate
($1,000) + ($17.31 x 4) = $1, gross

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

25. Example #4 - Calculating Gross Paycheck
FACTS: Salary quoted is $1,600/month for 35 hour work week -paid semimonthly. OT is calculated as 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.
$1,600 x 12 = $19,200 annual gross
$19,200/24 = $800 semimonthly gross
$19,200/(35 hours x 52 weeks) = $10.55 regular rate
$10.55 x 1.5 = $15.83 OT rate
$800 + ($10.55 x 10) + ($15.83 x 6) = $1, gross

26. Example #5 - Calculating Gross Paycheck
FACTS: Salary quoted is $2,200/month -
paid biweekly hours OT in one pay period
$2,200 x 12 = $26,400 annual
$26,400/26 = $1, each biweekly pay period
$26,400/2,080 = $12.69 regular rate
$12.69 x 1.5 = $19.04 OT rate
$1, (11.5 x $19.04) = $1, gross

27. Salaried Employees - Fluctuating Workweek
EE and ER may have an agreement that a fluctuating schedule on a fixed salary is acceptable
Overtime is calculated by dividing normal salary by total hours worked – same rate each week
Then an extra .5 rate is paid for all hours worked over 40 or
Can divide fixed salary by 40 hours – gives different pay rate each week
Alternative – BELO Plan
Appropriate for very irregular work schedule
Deductions cannot be made for non-disciplinary absences
Guaranteed compensation cannot be for more than 60 hours
Calculate salary as: wage rate multiplied by maximum number of hours and then add 50% for overtime

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

29. Example #1 - Calculating Piece Rate Gross Pay
FACTS: 4,812 units inspected in a hour week (600 of those units produced in extra hours). Employee is paid .12 per unit. Calculate gross using both methods.
Method A
(4,812 x .12) = $ regular piece rate earnings
577.44/47.25 = $12.22 hourly rate
$12.22 x .5 = $6.11 OT premium
$ ($6.11 x 7.25 hrs.) = $ gross
Method B
(4,212 x .12) + [600 x (.12)(1.5)] = $ gross

30. Example #2 - Calculating Piece Rate Gross Pay
FACTS: Inspection rate = $.08/unit. An EE inspected 6,897 units in 43.5 hours. She inspected 423 of these in overtime. Calculate using both methods.
Method A
(6,897 units x .08) = $ regular piece rate earnings
$551.76/43.5 hours = $12.68 hourly rate
$12.68 x .5 = $6.34 OT premium
$ (6.34 x 3.5) = $ gross
Method B
(6,474 x .08) + [423 x (.08 x 1.5)] = $ gross

31. Special Incentive Plans
Some piece rates systems may be modified to entice workers to produce more
Computation of payroll is based on differing rates for differing quantities of production
Example:
.18/unit for units inspected up to 2,000 units/week
.24/unit for units inspected between 2,001-3,500 units/week
.36/unit for units inspected over 3,500 units/week

32. Commissions
Commission can be used in many combinations (with base salary or stand alone) - as long as minimum wage provisions are met
Exception are outside salespeople who are exempt from FLSA
FACTS: 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
$30,000/26 = $1, base earnings
(8,500 x .02) = $170 commission
$1, = $1, gross

33. Bonuses and Overtime
Bonuses that are part of employees’ wage rates must be included for period covered by bonus
Those known in advance or set up as incentives must be added to wages for week and divided by total hours work to get regular pay
OT calculated based upon this rate

34. Profit-Sharing Plans Profit Sharing Plans
Profit Sharing Plans
EE shares in corporate profits – receives his/her share in the form of
Cash payment
Profits paid into retirement or savings account
Profits distributed as stock
These payments must meet standards established by Department of Labor

35. Violations & Remedies
Wage and Hour Division oversees employees’ complaints of minimum wage or OT violations
Statute of limitation is two years
Unless violation willful – then statute is three years
If it was willful, “liquidated damages” can be assessed equal to back pay and OT awards