AccountingBLOCK

Overtime pay is easy--for everyone except the person responsible for deciding when it is, or is not, due.

For example, how many hours of overtime must you pay an employee who works 48 hours in a workweek that includes 8 hours for July 4 (or Memorial Day, or New Years, etc.)? No overtime pay is due.

Say, Alice works 40 hours in the workweek, then takes a paid vacation day (8 hours). Does federal law require you to include the paid vacation day when determining whether Alice is entitled to overtime pay? (No.)

Joe works all day Sunday, and a total of 40 hours in the workweek. Does federal law require you to pay overtime rates or premiums for the Sunday work? (No)

You are the new bookkeeper at ABC Co., which has a 35-hour workweek. One week, Jeff works 40 hours and Jane works 41 hours. How much overtime pay does federal law require you to pay Jeff? (None) Jane? (One hour at overtime rates)

These are pretty basic rules for overtime pay.

But how about overtime for employees whom you pay a per diem: Must you include the per diem when calculating their overtime pay?

The following court case from back in 2002 still causes problems for employers:

The case: Berry, an electrician, was paid $20/hour plus $150/week per diem regardless of expenses, the same allowance the company gave its other electricians. Berry sued his employer, claiming that the Fair Labor Standards Act (FLSA) requires that the per diem be counted as regular pay rather than reimbursement, raising his hourly wage and time-and-a-half overtime rate.

Berry lost both the case and the appeal.

What the court said: The per diem might have affected overtime calculations if it were excessive--i.e., if it were really pay disguised as a per diem--but found that $150/week was not excessive, given that he lived some distance from the job site. [Berry v. Excel Group, 5th Cir. 4/19/02]

Experts cite the main causes of overtime problems

· Presuming that employees will work overtime without recording the hours on their timesheets.
· Varying the workweek from the usual 5 days, 40 hours.
· Failing to realize that if you have on-call time that severely restricts an employee’s personal activities, it is eligible for overtime pay.
· Nondiscretionary cash bonuses. These are bonuses required under a contract, agreement or promise, express or implied (such as a bonus for faster or higher production, improved quality or to get someone to stay with the company or take a job), or bonuses that employees have come to expect--with the exception of holiday bonuses. A nondiscretionary bonus given to hourly employees must be added to gross pay for the week in which it is earned and included when calculating their pay for overtime purposes. [29 CFR 7788.209]

Example: Joan enters orders for $9/hour. One week, Joan works 43 hours and earns a $24 bonus because the company gives prorated bonuses for higher production.

Joan regular pay: $387 for the week ($9/hour x 43 hours) + $24 bonus = $411 straight time pay (including the nondiscretionary bonus)

Joan’s overtime pay: $411 earned for week/43 hours worked = $9.56 regular rate of pay x 50% premium rate = $4.78 x 3 hours overtime = $14.34 premium pay.

Joan’s gross pay: $411 straight time pay + $14.34 premium pay = $425.34 gross pay for the week.

Important: There are different rules for discretionary cash bonuses. These are not required under a contract, agreement or promise and are not part of a pattern that leads employees to expect them and therefore do not affect overtime pay rates. [29 CFR 778.211]

Bottom line: When you find yourself in a gray area, it is far less costly to ask an outside CPA or payroll expert than for the company to defend itself in court.

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Zahid H. Lilani