PART III: TIMEKEEPING REQUIREMENTS AND CALCULATING “REGULAR RATE OF PAY” AND OVERTIME WAGES

First, Some Quick “Housekeeping”

This article is Part III of a three-part series covering employer obligations for the payment of overtime wages and the requirements to treat certain salary employees as exempt from overtime pay requirements. If you missed Parts I or II, you can find them here: Part I and Part II  

Part I: Covering changes to the minimum salary threshold required for Executive, Administrative, and Professional exemptions;

Part II: Covering changes to the minimum salary threshold required for the Highly Compensated Employee (“HCE”) exemption; and

Part III: This article covers general information about the payment of overtime wages, determining an employee’s “regular” rate of pay for calculating overtime, and timekeeping requirements for non-exempt employees under the Fair Labor Standards Act (“FLSA”) and Department of Labor (“DOL”) regulations.

Timekeeping Requirements

Keep in mind that employers have record-keeping obligations under the FLSA for all salary and hourly non-exempt employees who are entitled to overtime compensation, accounting for such employees’ hours and wages. Employers must keep an accurate record of the number of hours worked each day and each workweek by the employee as well as their corresponding payroll records. There is no particular form of timekeeping records required, only that they accurately account for all hours worked to ensure employees get paid what they earn and are owed, including overtime wages at the appropriate rate of pay. 

Additionally, and especially regarding employees who were previously salary-exempt but are now eligible for overtime compensation as a salary non-exempt or hourly non-exempt employee, employers will need to ensure that employees are recording all of their working time. This may become especially problematic when it comes to work performed “after hours,” such as checking emails, work-related text messages or phone calls before or after work or when otherwise “clocked out.” Employers are encouraged to create policies addressing employees’ responsibilities to record accurately all time worked and to avoid  work-related tasks outside of their customary and standard working hours. Should employees perform work when “off the clock,” they should record that time on their timesheets and be paid appropriately for all time worked. This may be a learning curve for employees formerly exempt from overtime pay and related timekeeping requirements.

Misc. Reminders re: Overtime Compensation

Hours Worked. Employers are obligated to pay non-exempt employees the overtime rate for all work exceeding 40 hours in a workweek, regardless of whether overtime was approved. It is the hours worked, not the hours scheduled/approved, that are entitled to compensation. Employers are permitted to issue appropriate corrective action in accordance with company policy to employees who repeatedly or consistently fail to monitor their hours to prevent unapproved overtime; however, it is important to note that all overtime worked must be paid.

Regular Rate of Pay. Overtime wages are paid at one-and-one-half times the employee’s “regular” rate of pay. For employees who make one hourly rate for each hour worked, the calculation is simply one-and-one-half times the hourly rate. For employees who are paid different or multiple hourly rates due to shift differentials,the performance of different jobs for the same employer, or for joint employers, the employee’s regular rate of pay is the average hourly rate(calculated by dividing the total pay for employment in any one workweek by the total number of hours actually worked), and the overtime rate is one-and-one-half times this number. Employers will need to complete the regular rate of pay calculation each week the employee works overtime to determine the appropriate overtime rate for that week. 

Regular Rate of Pay: Nondiscretionary Bonuses. Certain bonuses are considered non discretionary under the FLSA and must be included in the regular rate of pay calculation, regardless of whether the employee has one or multiple hourly rates, in order to calculate the overtime rate of pay. Non discretionary bonuses typically include, but are not limited to, bonuses based on a predetermined formula, such as individual or group production bonuses, bonuses announced to employees to induce more efficiency, better quality, better results, etc., attendance bonuses, and safety bonuses. These bonuses are non discretionary as employees typically know about the bonus and understand what they must do to earn the bonus. The fact that the employer has the option not to pay the bonus does not make it non discretionary. 

Some non discretionary bonuses, if earned over a single workweek, must be included in full in the calculation of the regular rate of pay and overtime rate for that workweek, whereas some non discretionary bonuses earned over a series of workweeks must be pro-rated and included in the regular rate of pay in all overtime weeks covered by the bonus period. If the amount of the bonus cannot be determined until the end of the bonus period, once the bonus can be ascertained, it must be apportioned back over the workweeks in the bonus period, and the employer must pay the overtime premium pay due on the bonus based on the new regular rate of pay calculations for weeks in which overtime was previously paid without the bonus compensation included in that calculation. 

State Laws. Some states have different requirements for when employees must be paid an overtime premium rate; for example requiring all hours worked on the employee’s 7th consecutive workday in one workweek being paid at the overtime rate, regardless of whether the employee’s overall hours exceed 40 during the same week. Some states have different methodologies for how employers are required to calculate overtime when employees receive certain flat rate non discretionary bonuses. Employers with employees outside of the state of Ohio are encouraged to consult with a trusted attorney to become familiar with the employment laws and wage obligations in the state(s) where its employees are located and perform work for pay. The employment laws of the state where the employee is performing work govern that employment relationship, and the employer may need to modify its policies or practices for such an employee to ensure compliance with state law.