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June 14, 2016

Are You Breaking These Top 5 Overlooked FLSA Requirements?

Are You Breaking These Top 5 Overlooked FLSA Requirements?

By Kit Dickinson on June 14, 2016

Businessman and banana skin

With the new government overtime changes effective on December 1, staying in compliance with the Fair Labor Standards Act has become more challenging—and risky—for companies across all industries. Even before the latest changes, there have been a number of high-profile cases resulting major fines against companies that don’t comply with FLSA.

Many organizations suddenly need to become experts on what the new overtime laws mean for their company. But it’s easy to overlook aspects of FLSA without knowing it. Here are the top 5 scenarios we’ve seen that companies overlook as they try to stay in compliance with FLSA.

5 FLSA Scenarios You Could Easily Miss

1) Ignoring non-discretionary payments (e.g. bonus, commission) against the period when they were earned

Did you know that if you pay a commission or bonus based on products or services sold in a prior month, quarter, or year that you likely need to adjust the employee’s overtime earnings against the period when it was earned?

Example: Sally sells mortgage loans in April. After closing the month, you determine that her commissions are $500 and pay her the $500 in the first payroll of May. Since the commission was based on what she sold in April, you need to adjust any April overtime earnings to reflect this additional $500 earned in the prior month.

2) Semi-Monthly pay frequency

Most companies that choose a semi-monthly payroll have a majority of their employee’s classified as salaried or exempt from overtime. But if you have overtime-eligible employees, their overtime hours and rate calculation to be in compliance with FLSA is based on defined workweeks—NOT the entire semi-monthly pay period.

Often, that means you need to calculate overtime rates using days from the prior pay period to ensure consistent calculation based on a Sunday-Saturday or other defined work week. Many time & attendance systems are excellent at determining the overtime-eligible hours, but calculating the exact overtime rate can be challenging.

3) Excluding production incentive earnings or temporary job transfer rates in weekly overtime rate

If you compensate your employees with earnings based on production (e.g., piece rate), those earnings typically need to be included in the weekly average overtime rate determination. If your employees transfer to different paying jobs, projects, departments worked, you’ll need to factor in those different rates as well.

Check with your labor attorney, but we see these critical earnings and temporary rates often overlooked in the weekly overtime rate calculation. They expose you to significant errors and risk.

4) Salaried employees eligible for overtime (Salary Non-Exempt)

Some professional services companies classify certain employees as salary non-exempt (e.g., bank tellers, paralegals, administrative staff). These employees earn a defined salary and receive a descending rate for hours worked over 40 hours. However, if they exceed 40 hours due to a vacation day or other non-worked time, they don’t get the premium overtime pay.

Calculating when an employee is eligible for the overtime earnings and proper pay rate can be time-consuming and error-prone if done manually or in spreadsheets.

5) Neglecting to calculate overtime based on each week of a biweekly pay cycle

A fundamental requirement of FLSA is that the overtime hours and corresponding average rate are to be based on a weekly period. Companies who pay biweekly (every 2 weeks) need to split their overtime hours and rate calculations into what was worked in week 1 vs. week 2 of the pay period. Failure to do this results in incorrect overtime pay and non-compliance with FLSA.

Avoid Noncompliance with Automation

If your company deals with any of these scenarios, now is the time to explore an automated solution to complement your time & attendance and payroll systems. Head off the FLSA compliance risks now, before December 1.

IDI’s Time Bank solution is designed to reliably address these often overlooked requirements—which can’t always be configured in time & attendance and payroll systems.

Quick Time Entry Video

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