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

2. Fair Labor Standards Act zFLSA - Federal Wage & Hour Law provides for two types of coverage zEnterprise Coverage yAll EE of interstate commerce y And $500,000 or more annual gross sales zIndividual Coverage yEE whose company may not meet enterprise coverage, but are in fringe occupation are covered individually (for example packaging) plus many nonprofits yAll companies in manufacturing or personal care ARE covered! yMany family businesses are exempt!

3. FLSA & Domestic Help zDomestic help includes nannies, gardeners, chauffeurs, etc. zThese employees must earn minimum wage and overtime if they: ywork more than 8 hours/week or yearn $1000 in a calendar year z“Live-in” help need not be paid overtime

4. zIncludes all rates of pay including, but not limited to: yCommissions yBonuses and severance pay yOn-call or differential yExceptions to minimum wage – yFT students employed at their own university - 85% yStudent learners at Vocational Technical school - 75% yRetail or farms employing FT students - 85% yPhysically or mentally impaired employees with certification *Minimum wage is very different from ‘living wage’. Over 40 US communities now have local ordinances mandating employers who have local government contracts to pay a living wage to their employees (the amount minimally necessary to live in that community). What is Minimum Wage?

5. Tipped Employees yAnyone averaging $30/month is a “tipped employee” yThis is FLSA, not state law ySmall Business Job Protection Act froze minimum tipped wages at $2.13/hour, but EE still must make $5.15/hour when combining tips/wages (5.15 x 40 = $206 minimum weekly gross) yER gets credit for tips received between $2.13 and $5.15 yExamples of tips received for 40-hour work week x#1. Reported tips = $43 xIs $85.20 (minimum tipped wages) + $43 > $206 xNo - ($206 - 43 = $163) so ER must pay additional wages ($163 - 85.20) x#2. Reported tips = $1189 xIs $85.20 + $1189 > $206 xYes so ER pays $85.20 wages x#3. Reported tips = $111 xIs $85.20 + 111 > $206 xNo - ($206 - 111 = $95) so ER must pay additional wages ($95 - 85.20)

6. 40 Hour Work Week zEstablished by corporate policy (for example 12:01 a.m. Saturday - 11:59 p.m. Friday) zFLSA doesn’t require OT for 8+ hour days but for 40+ hour weeks, although some states require daily overtime over 8 hours zFLSA sets OT at 1.5 times regular pay xException 1 - Hospital EE, overtime for 80+ hours in 14 days xException 2 - EE receiving remedial education xException 3 - State/federal government agencies xException 4 - Union mandate zEmergency public safety EE - can accumulate 320 hrs x 1.5 = 480 hours compensatory time instead of OT zEE of state or interstate governmental agency – can accumulate 160 x 1.5 = 240 hours compensatory time instead of OT

7. Exempt vs. Nonexempt Putting someone on salary doesn’t mean they’re exempt!! “Exempt” means exempt from overtime provisions of FLSA y1. Executives xdiscretionary and supervisory powers xnonexempt work cannot exceed 20% y2. Professional xcreativity and intellectual work xuses independent judgment xnonexempt work cannot exceed 20% y3. Administrative xdiscretionary work xdirectly assists executive xnonexempt work cannot exceed 20% y4. Outside sales yprimary sales work is away from the employer’s place of business Must be paid on salary and gross at least $250/week

8. Child Labor Laws yUnder age 16 cannot work in construction, mining, manufacturing, etc. yUnder age 18 cannot work in hazardous jobs yUnder 16 years old limited to employment in retail and food/gas service: xonly 7 a.m. - 7 p.m. (until 9 p.m. allowed in summer) x3 hours per day - 18 hours per week – school year x8 hours per day - 40 hours per week – summer zIn agricultural occupations an employee as young as 10 can work yonly from 6/1 - 10/15 ysubject to many strict limitations yviolations can result in up to $10,000/offense yER needs to have certificate of age on file

9. Compensable vs. Noncompensable Time yTravel (when part of principal workday) is consdered work time yTraining (when for ER benefit/required) is compensable yRest periods under 20 minutes are compensable (can’t make EE ‘check out’) yPrep at work station (but not clothes changing, shower) is compensable yMeal periods are not considered compensable unless employee must perform some tasks while eating yOn call time is not compensable if employee can spend time as he/she chooses yFLSA does not require: xPay on holidays, vacation, sick, extra on weekends xPay while waiting to check in/out of plant or for paycheck

10. Timekeeping zFLSA requires employers to retain time/pay records zEmployer in traditional office environment can use: yTime sheet yTime cards yComputerized time/attendance records xcard-generated systems (computerized totals) xbadge systems (microchips or bar codes) xcardless/badgeless system - EE enters PIN zEmployer in nontraditional office environment can use: yTouch screen technology (PC screen reads touch input) yInternet yWireless transmission (cell phones, PDAs) yBiometrics - iris scan, fingerprint or some other unique characteristic to ensure security

11. How Wages are Paid z1.Check xMany companies keep a separate operating account xWrite a check from the regular account to a payroll account for net amount xEasier to reconcile when payroll checks are written against one account z2.EFT xElectronic Funds Transfer xData transmitted to bank through ACH (Automated Clearing House) xEmployees receive “stub” or statement showing gross pay and deductions and net amount deposited to account

12. Pay Periods zBiweekly (26) - same hours each pay period zSemi-monthly (24) - different hours each pay period zMonthly (12)- different hours each pay period zWeekly (52) - same hours each pay period ER can have different pay periods for different groups within same company!

13. Steps to Follow when Calculating Gross Pay zAnnualize Salary zCalculate “regular” gross zCalculate hourly pay zCalculate OT rate (1.5 x hourly rate) zAdd overtime pay to “regular” gross

14. Examples - Calculating Gross Paycheck (#1) FACTS: Salary quoted is $1,500/month - paid weekly - 43 hours in one pay period z$1,500 x 12 = $18,000 annual z$18,000/52 = $346.15 weekly gross z$346.15/40 hours = $8.65 regular rate z$8.65 x 1.5 = $12.98 OT rate z($12.98 x 3) + $346.15 = $385.09 gross

15. FACTS: Salary quoted is $2,000/month - paid semi monthly - 4 hours OT in one pay period z$2,000 x 12 = $24,000 annual z$24,000/24 = $1,000 semimonthly gross z$24,000/52 = $461.54 z$461.54/40 = $11.54 regular rate z$11.54 x 1.5 = $17.31 OT rate z($1,000) + ($17.31 x 4) = $1,069.24 gross Practice Calculating Gross Paycheck (#2)

16. FACTS: Salary quoted is $2,000/month for 38 hour work week - paid semimonthly. OT - regular pay between 38-40 hours/week; 1.5 after 40. Of 16 hours of OT in one pay period only 12 over 40 z$2,000 x 12 = $24,000 annual z$24,000/24 = $1,000 semimonthly gross z$24,000/ (38 x 52)* = $12.15 regular rate z$12.15 x 1.5 = $18.23 OT rate z$1,000 + (4 x $12.15) + (12 x $18.23) = $1267.36 gross *Denominator is always number of hours in full time year - may be different between companies Practice Calculating Gross Paycheck (#3)

17. FACTS: Salary quoted is $1,600/month for 35 hour work week - paid semimonthly. OT - regular hourly pay between 35-40 hours/week; 1.5 after 40 hours. Of 16 hours of OT in one pay period, 6 hours are over 40 hours weekly z$1,600 x 12 = $19,200 annual gross z$19,200/24 = $800 semimonthly gross z$19,200/(35 hours x 52 weeks) = $10.55 regular rate z$10.55 x 1.5 = $15.83 OT rate z$800 + ($10.55 x 10) + ($15.83 x 6) = $1000.48 gross Practice Calculating Gross Paycheck (#4)

18. FACTS: Salary quoted is $2,200/month - paid biweekly - 11.5 hours OT in one pay period z$2,200 x 12 = $26,400 annual z$26,400/26 = $1,015.38 each biweekly pay period z$26,400/2080 = $12.69 regular rate z$12.69 x 1.5 = $19.04 OT rate z$1,015.38 + (11.5 x $19.04) = $1,234.34 gross Practice Calculating Gross Paycheck (#5)

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

20. Practice Calculating Piece Rate (#1) FACTS: 4,812 units inspected in a 47.25 hour week (600 of those units produced in extra hours). Employee is paid.12/each. Calculate using both methods. Method 1 z(4,812 x.12) = 577.44 regular piece rate earnings z577.44/47.25 = $12.22 hourly rate z$12.22 x.5 = $6.11 OT premium z$577.44 + ($6.11 x 7.25 hrs.) = $621.74 gross Method 2 z(4,212 x.12) + (600 x [.12][1.5]) = $613.44 gross

21. Facts: Inspection rate = $.08/unit. An EE inspected 6897 units in 43.5 hours. She inspected 423 of these in overtime. Calculate using both methods. Method 1 z(6897 units x.08) = $551.76 regular piece rate earnings z$551.76/43.5 hours = $12.68 hourly rate z$12.68 x.5 = $6.34 OT premium z$551.76 + (6.34 x 3.5) = $573.95 gross Method 2 z(6474 x.08) + (423 x.12) = $568.68 gross Practice Calculating Piece Rate (#2)

22. Commission z Commission can be used in many combinations (with base salary or stand alone) - as long as minimum wage provisions are met zFor 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: y$30,000/26 = $1153.85 base earnings y(8500 x.02) = $170 commission y$1153.85 + 170.00 = $1323.85 gross