Ensuring that wages are calculated correctly is vital, both for workers and for businesses. Employers and employees alike are almost universally aware that for most hourly-paid employees, hours over 40 worked in a workweek must be paid at a rate of time and a half the worker’s regular hourly rate. As simple as that concept may sound, however, errors related to overtime pay occur on a frequent basis, in any number of different ways. There are all kinds of variables and factors that potentially can make a difference as to whether overtime is owed and if so, how to calculate it. Following are a few pointers related to the calculation of overtime for nonexempt employees. While the list is far from exhaustive, it should at least provide food for thought about some of the common pitfalls.
1. Even if employees aren’t supposed to work overtime, they still have to be paid for it.
Employers trying to watch their bottom lines by reducing the amount of overtime worked often create “no overtime” rules. Employees may indeed properly be directed not to work more than 40 hours in the workweek, generally speaking. However, the methods employers use to enforce these kinds of rules can sometimes get them into trouble.
Where an employer tries to enforce a no-overtime rule by not paying for overtime worked, generally they are violating the law. Time worked must be paid, plain and simple.
That does not mean, however, that employers are powerless to enforce their rules. If an employee works unauthorized overtime, the correct response should be to pay the employee for that overtime but then issue him or her corrective discipline to ensure that it does not occur again.
Workers should not, however, be reprimanded for incurring overtime because they were directed to work more than 40 hours in that particular workweek. Employers should not issue blanket no-overtime rules on the one hand but then during the workweek direct employees to work more than 40 hours on the other and then scold them for doing so.
2. Overtime is calculated by the workweek, not the pay period.
Some employers mistakenly believe that if an employee works 60 hours in the first week of a two week pay period and 20 hours in the second week, then the worker can be paid straight time for 80 hours of work. Some even go farther than that and run ongoing “comp time” type systems. The vast majority of the time, these systems are impermissible. Although “comp time” systems can be permissible for certain governmental employers, generally for private employer hourly workers, they are improper.
The FLSA “takes a single workweek as its standard and does not permit averaging of hours over 2 or more weeks.” 29 C.F.R. §778.104. In the first example, the employer should pay 20 of the total 80 hours worked at the overtime rate because the employee worked 20 overtime hours in the first workweek of the pay period. In most circumstances, the “workweek” is the unit from which to determine whether and how much overtime pay is owed.
3. The correct overtime rate for a $2.13/hr tipped employee is NOT $3.20/hr.
Overtime rates for tipped employees are calculated wrong all the time. When a tipped employee paid at $2.13 per hour works more than 40 hours in a workweek, his or her overtime rate is not $2.13 x 1.5 = $3.20. By law, tipped employees should have their overtime rate calculated as follows: minimum wage times time-and-a-half minimum wage, minus the applicable “tip credit.” 29 C.F.R. § 531.60(a). Thus, for example, for a server whose hourly rate is $2.13 per hour, the applicable overtime rates should have met or exceeded the following rates:
| Tipped Employee Overtime Rates | ||||
| | pre-7/24/07 | 7/24/2007 | 7/24/2008 | 7/24/2009 |
| Min Wage | $ 5.15 | $ 5.85 | $ 6.55 | $ 7.25 |
| Min Wage x 1.5 | $ 7.73 | $ 8.78 | $ 9.83 | $ 10.88 |
| Wage | $ 2.13 | $ 2.13 | $ 2.13 | $ 2.13 |
| Tip Credit | $ 3.02 | $ 3.72 | $ 4.42 | $ 5.12 |
| OT rate | $ 4.71 | $ 5.06 | $ 5.41 | $ 5.76 |
These are just a sampling of some of the issues that can come up in the context of overtime law and should be construed as general guidelines, not legal advice. Every business is different, and in order to figure out proper compliance with the rules, the specific circumstances of the operation and positions should be addressed individually. For more information on wage and hour laws, contact Penn Dodson at 706.548.8668 pud@classiccitylaw.com or see the US DOL website: http://www.dol.gov/whd/regs/compliance/whdfs23.pdf
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