Here are four common Fair Labor Standards Act (FSLA) problems you should be aware of:
1. Worker classification. You cannot avoid overtime pay simply by paying employees a salary and classifying them “exempt.” To avoid misclassification, know what jobs are exempt (regardless of whether they are salaried or paid by the hour), then review job descriptions and how each job is actually performed.
2. Docking pay. An exempt worker docked for a partial-day's absence may lose his/her exempt status, costing you retroactive overtime pay, unless the docking is connected to an FMLA-related leave.
3. Voluntary or unauthorized work. Nonexempt employees must be paid for time worked, voluntary or not. Even if your policy requires that a manager approve paid overtime, your firm must still pay at least 1½ x the employee’s hourly rate for each hour worked over 40 hours in the workweek.
4. Calculating overtime pay. FLSA requires that overtime pay be based on the employee’s regular rate of pay, which is often higher than the base rate because it includes nondiscretionary bonuses and other payments.
Example: Nondiscretionary bonuses are those required under a contract, agreement or promise, express or implied. These include bonuses for production, work quality or to get someone to take or stay on a job and bonuses that employees have come to expect (other than holiday bonuses). A nondiscretionary bonus given to hourly employees must be added to their gross pay in the week it is earned and must be included when calculating their pay for overtime purposes.
Illustration: Marina's pay rate is $9/hr. plus production bonuses. One week she works 43 hours and earns a $27 bonus.
Marina’s regular pay: $387 for the week ($9/hr. x 43 hours) + $27 bonus = $414 straight-time pay.
Marina’s overtime pay: $414 earned for the week (including the nondiscretionary bonus) ÷ 43 hours worked = $9.63 regular rate x 50% premium rate = $4.82 x 3 hours overtime = $14.46 premium pay.
Marina’s gross pay: $414 straight time pay + $14.46 premium pay = $428.46 gross pay for the week.