Professional Documents
Culture Documents
Chapter 2
COMPUTING WAGES &
SALARIES
Introduction
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Fair Labor Standards Act (1 of 2)
Introduction
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Fair Labor Standards Act (2 of 2)
Introduction
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Employee (EE) & Employer (ER)
Defined (1 of 2)
• An employer is an individual who “acts
directly/indirectly in the interest of an employer” in
relation to an employee
– Courts broadly interpret
• An individual is an employee if he/she performs
services in a covered employment
– Common-law relationship
– IRS test based on behavioral control, financial control or
relationship between EE and ER
Introduction
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Employee & Employer Defined (2 of 2)
Introduction
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FLSA & Domestics
• Domestic help includes nannies, gardeners, chauffeurs, etc.
• These employees must earn minimum wage and overtime if they
– Work 8 hours/week or more or
– Earn at least $2,000 in a calendar year
• Live-in domestics need not be paid overtime
• Direct care workers (in care assistance to elderly/disabled/etc.)
subject to minimum wage and OT rules if employed by third-party
employer
• Interns in not-for-profit sector may be exempt if not compensated
or in for-profit sector if training is for own educational benefit
Introduction
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What is Minimum Wage? (1 of 2)
Introduction
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What is Minimum Wage? (2 of 2)
Introduction
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Paying More Than or Less Than Minimum
Wage
• Current minimum wage is $7.25/hour – established
with Fair Minimum Wage Act of 2007
– Certain exceptions to minimum wage
Training wage $4.25/hour for first consecutive 90 days of
employment if <20 years old
Institutes of higher education, retail or service establishments
and farms may pay full-time students 85% of minimum wage
Complete list found on p 2-5
– Situations where wages higher than federal minimum must be
paid include
States with higher minimum wage
Employees of federal contractors
Introduction
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Minimum Wage vs. “Living Wage”
Introduction
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Tipped Employees (1 of 2)
– “Tipped employee” regularly averages > $30/month in
tips
– Minimum tipped wage is $2.13/hour; therefore, tip credit
that employer may take = $5.12/hour
May be calculated differently based upon state law
Employee must make $7.25/hour when combining
tips/wages ($7.25 x 40 = $290 minimum weekly gross)
Tip credit remains the same ($5.12/hour) for OT pay
calculation purposes (see example below)
Facts: Raquel works 47 hours at Christchurch Bar as a tipped employee. She
averages $750 tips/week. If her employer takes the maximum tip credit
($5.12/hour), Raquel’s gross pay will be calculated as:
(40 hours x $2.13) + (7 hours x ($10.88* - $5.12)) = $125.52
*$7.25 minimum wage x 1.5 = $10.88 OT minimum wage
Introduction
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Tipped Employees (2 of 2)
Examples of tips received for 40-hour workweek
#1. Reported tips = $43
– Is $85.20 (40 x $2.13 minimum tipped wage) + $43 >
$290?
– No - so employer must pay additional wages of
$290 - $43 = $247
#2. Reported tips = $1,189
– Is $85.20 + $1,189 > $290?
– Yes – so employer pays $85.20 wages
Notes: (a) states’ tip credit percentages may differ from federal
law, (b) if employees must share tips w/dishwashers, etc., then
credit is lost
Introduction
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Overtime Provisions & Exceptions (1 of 2)
Introduction
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Overtime Provisions & Exceptions (2 of 2)
Introduction
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Compensatory Time Off
Introduction
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Exempt vs. Nonexempt Employees
Introduction
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Figure 2.2 Indications of Exempt
Status (1 of 3)
Executive Administrative Professional Business Owner
1. Primary duty- 1. Primary duty- 1. Work requires 1. Owns at least 20
Managing performs office advanced percent of equity
work knowledge
(science or
learning)
2. Supervises two or 2. Regularly uses 2. Knowledge 2. Actively manages
more employees discretion and acquired by business operation
independent prolonged course
judgment of instruction
3. Authority to
hire,fire,promote
Introduction
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Equal Pay Act
• Amended FLSA
• Prohibits discrimination by paying wages to employees
of one sex at a lower rate than those of opposite sex
• If unlawful pay differential exists, employer must raise
the lower rate to equal the higher rate
Introduction
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Child Labor Restrictions (1 of 2)
• Nonfarm occupations
– Employees age 16 and 17 may work unlimited number
of hours each week in nonhazardous jobs
– 14- and 15-year olds are limited to employment in retail
and food/gas service with very specific conditions as to
hours/employment conditions
Introduction
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Child Labor Restrictions (2 of 2)
• Agricultural occupations
– Under age 12 employment is generally prohibited
– Kids age 10 and 11 may work as hand harvest laborers
outside school hours only between 6/1 - 10/15
– Subject to many strict limitations
– Employer needs to have certificate of age on file
– Violations of child-labor provisions can result in serious
fines
Introduction
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Wage Theft & Penalties
Introduction
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What the FLSA Does Not Cover
Introduction
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Determining Employee’s Work Time (1 of 2)
Introduction
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Determining Employee’s Work Time (2 of 2)
– Rest periods 20 minutes or less are principal activities
(can’t make employee “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 for nonexempt
employees, even if not told to take work home
ER should have clear statement n policy manual on e-
mail work outside of ‘clocked in hours’ for hourly staff
– Sleep time is principal activity if required to be on duty <
24 hours
– Training sessions (with certain caveats)
– Waiting for doctor’s appointment on site
Introduction
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Noncompensable Activities
Introduction
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Records Used for Timekeeping
• FLSA requires certain time and pay records be kept
– Time sheets indicate arrival/departure time of employee
– Computerized time/attendance recording systems
Card-generated systems use computerized time cards
Badge systems employ badges in conjunction with electronic
time clocks
Cardless and badgeless systems require that an employee use
their PIN number to process timekeeping
PC-based system allows employee to clock in via computer
– Next generation technology includes touch-screen kiosks,
web-based, biometrics and IVR (interactive voice response)
Introduction
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Computing Wages/Salaries
Introduction
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Calculating Overtime) Pay (1 of 2)
Introduction
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Calculating Overtime Pay (2 of 2)
• Other method
– Calculate gross pay (all hours worked x employee’s
regular rate)
– Then calculate an overtime premium (hours in excess of
40 x *overtime premium rate)
* Hourly
rate x ½ = overtime premium rate
These methods result in same total gross pay!
Introduction
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Calculating Overtime – Different Rates for
Different Jobs
• Employer may calculate overtime in one of three ways:
– Pay overtime at higher rate
– Calculate total earnings for all jobs, divide by total hours
and apply overtime premium based on that weighted
average
– Use overtime rate for job performed after 40th hour
Introduction
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Example - Calculating Gross Pay at Two
Different Pay Rates
FACTS: Oshiko worked for Tinto Inc. in two capacities. Job “A” paid
$14.50/hour (he worked 37 hours at this) and Job “B” paid $11.00/hour
(6 hours). 3 hours overtime.
Method (1)
Regular pay ($14.50 x 37 hrs) + ($11.00 x 6 hrs) = $602.50
OT premium on higher rate ($14.50 x .5) x 3 hours = $21.75
Total pay = $602.50 + $21.75 = $624.25
Method (2)
Start with same regular pay ($602.50) divided by total hours:
$602.50/43 hours = $14.01 regular rate and OT premium = $14.01 x
.5 = $7.01. $602.50 + ($7.01 x 3) = $623.53
Method (3)
Start with same regular pay ($602.50) and add OT premium at Job B rate.
[$602.50 + ($11.00 x .5 x 3 hours)] = $619.00
Introduction
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Steps: Converting Period Wage Rates to
Hourly Rates
1. Annualize salary
2. Calculate regular weekly gross
3. Calculate hourly pay
4. Calculate overtime (OT) rate - (1.5 x hourly rate)
5. Add OT pay to regular gross
Introduction
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Example #1 Calculating Gross Paycheck
FACTS: Salary quoted to nonexempt employee is $1,500/month
- paid weekly – 43 hours in one pay period
• $1,500 x 12 = $18,000 annual
• $18,000/52 = $346.15 weekly gross
• $346.15/40 = $8.65 regular rate
• $8.65 x 1.5 = $12.98 OT rate
• $346.15 + ($12.98 x 3) = $385.09 gross
Introduction
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Example #2 Calculating Gross Paycheck
FACTS: Salary quoted to nonexempt employee 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
• $24,000/52 = $461.54 weekly rate
• $461.54/40 = $11.54 regular hourly rate
• $11.54 x 1.5 = $17.31 OT rate
• $1,000 + ($17.31 x 4) = $1,069.24 gross
Introduction
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Example #3 Calculating Gross Paycheck
Introduction
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Salaried Nonexempt Employees
FACTS: Salary quoted to nonexempt employee is
$1,600/month for 35 hour work week - paid semimonthly. OT
is calculated as 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.
• $1,600 x 12 = $19,200 annual gross
• $19,200/24 = $800 semimonthly gross
• $19,200/52 = $369.23 weekly rate
• $369.23/35 = $10.55 regular rate
• $10.55 x 1.5 = $15.83 OT rate
• $800 + ($10.55 x 10) + ($15.83 x 6) = $1,000.48 gross
Introduction
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Salaried Nonexempt Employees -
Fluctuating Workweek (1 of 2)
• Employee and employer may forge an agreement that
a fluctuating schedule on a fixed salary is acceptable
– Overtime is calculated by dividing normal salary by total
hours worked
Then an extra 0.5 overtime premium is paid for all hours
worked over 40
or
– Can divide fixed salary by 40 hours – gives different pay
rate each week
– Then an extra 0.5 overtime premium is paid for all hours
worked over 40
Introduction
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Salaried Nonexempt Employees -
Fluctuating Workweek (2 of 2)
• 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
Introduction
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Piece Rate (1 of 2)
Introduction
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Piece Rate (2 of 2)
• 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
payor
or
• Method B
– (Units produced in 40 hours x piece rate) + [(Units
produced in OT) x (1.5 x piece rate)]
Note: two methods don’t give same results!!
Introduction
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Example #1 Calculating Piece Rate Gross
Pay (1 of 2)
Facts: 4,812 units inspected in a 47.25 hour week (600 of
those units produced in extra hours). Mustafa is paid
$.12 per unit. Calculate gross pay using both piece rate
methods.
Introduction
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Example #1 Calculating Piece Rate Gross
Pay (2 of 2)
Method A
• 4,812 x $.12 = $577.44 regular piece rate earnings
• $577.44/47.25 hours = $12.22 hourly rate
• $12.22 x .5 = $6.11 OT premium
• $577.44 + ($6.11 x 7.25 hrs.) = $621.74
Method B
• (4,212 x $.12) + [600 x ($.12)(1.5)] = $613.44
Introduction
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Example #2 Calculating Piece Rate Gross
Pay (1 of 2)
Facts: Roisin is paid to inspect shellfish and is paid
$.08/case. Roisin inspected 6,897 cases in 43.5 hours;
she inspected 423 cases in overtime. Calculate gross pay
using both methods.
Introduction
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Example #2 Calculating Piece Rate Gross
Pay (2 of 2)
Method A
• (6,897 units x $.08) = $551.76 regular piece rate
earnings
• $551.76/43.5 hours = $12.68 hourly rate
• $12.68 x .5 = $6.34 OT premium
• $551.76 + ($6.34 x 3.5 hours) = $573.95
Method B
• (6,474 x $.08) + [423 x ($.08)(1.5)] = $568.68
Introduction
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Special Incentive Plans
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Commissions (1 of 2)
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Commissions (2 of 2)
Facts: Sam sold $40,000 of product. His quota is $31,500. He
gets 2% in excess of quota and his annual base salary is
$30,000. He gets paid biweekly; calculate his total gross pay.
$30,000/26 = $1,153.85 base earnings
($40,000 - $31,500) x .02 = $170 commission
$1,153.85 + $170.00 = $1,323.85 gross
Introduction
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Nondiscretionary Bonuses (1 of 2)
Introduction
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Nondiscretionary Bonuses (2 of 2)
Introduction
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Profit-Sharing Plans
Introduction
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