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September 11, 2014

FLSA Overtime Laws: Ignorance Isn't Bliss

FLSA Overtime Laws: Ignorance Isn't Bliss

By Kit Dickinson on September 11, 2014

FLSA Overtime Laws Ignorance Isn't BlissWhat you don’t know about FLSA can hurt you. FLSA guidelines on overtime pay can be confusing. And if you pay your employees twice per month or pay bonuses or commissions, you could be at risk for lawsuits and violations.

There are two situations in particular when overtime compliance can cause problems. If you’re relying on manual adjustments and calculations to run payroll, use extreme caution to avoid errors.

Semi-Monthly Pay Period

Federal law states that overtime must be paid based on a weekly average rate if an employee works more than 40 hours in a seven-day workweek. When the pay period covers all seven days in the week, overtime is easy to identify and many timekeeping and payroll systems can calculate the correct blended overtime rate.

The trouble comes when the pay period ends midweek and the overtime week crosses the pay period boundaries. Many companies, even with automated time-and-attendance systems, struggle to calculate the FLSA compliant overtime rate if they have a semi-monthly pay cycle. Because payroll systems can’t look back into the past and account for the overtime, payroll personnel must remember to manually calculate the adjustment.

Non-Discretionary Payments and Overtime

A non-discretionary payment (e.g. bonus or commission) is any earnings amount that is owed to an employee for meeting predetermined requirements, such as a quota. Employers often forget that non-discretionary bonuses must be treated as regular wages when calculating overtime pay. If a bonus is awarded in the same pay period it is earned, the calculation is straightforward and handled by most time-and-attendance or payroll systems.

However, it can get complicated. In certain cases, the bonus or commission is awarded in a later pay period—for example, if a mortgage broker sells a loan in one month but the commission is booked in the next month. In these cases, you must pay the bonus/commission as well as the difference owed in overtime pay from the prior month. Employers that owe prior period overtime adjustments are in a risky situation. Not only must you correctly calculate the proper compensation, you must also keep track of times when you owe additional overtime pay for these non discretionary payments.

FLSA overtime laws are tricky, and manual adjustments leave a lot of room for human error. But you can protect yourself by knowing your responsibilities and seeking ways to implement automated calculations.

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