Modern Tire Dealer

JUN 2019

Magazine for the professional tire industry

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M T D J u n e 2 0 1 9 24 W a g e a n d H o u r R e g u l a t i o n s administrative and professional employees under the Section 13(a) (1) minimum wage and overtime exemption. COMPUTING THE REGULAR RATE FOR OVERTIME Overtime must be paid on the "regular rate," defined in Section 7(e) of the FLSA. e regular rate includes all compensation paid for employment unless the FLSA specifically excludes that compensation. e regular rate is not always the hourly rate. e regular rate is a weighted rate — it factors in both incentives and hourly pay. So if you pay overtime on just the hourly rate, but also pay spiffs, you are not paying enough overtime. Here's another way to look at the regular rate: You convert incentive pay to an hourly rate, add that rate to the employee's typical hourly rate, and pay overtime accordingly. If an employee worked 45 hours that week and earned $90 in spiffs, the spiffs equal $2/ hour. If the hourly rate is $15/hour, add the $2/hour for spiffs to arrive at a regular rate of $17/hour. You must pay overtime based on the regular rate of $17/hour. As a sidebar, we typically think of overtime as "time-and-a-half " for hours over 40. When computing the regular rate, it helps to think of "straight time pay" as pay at the hourly rate for all hours worked plus incentives, and "overtime pay" as a premium that equals half the regular rate for hours over 40. So for a 50 hour work week, the employee receives straight time pay at 50 hours multiplied by their hourly rate, plus incentives, plus an overtime premium at half the regular rate for hours over 40. e "time" is in the straight time pay and the "half " is in the overtime premium. In general, the regular rate includes incentives paid through a program known to the employee. Examples may include a sales bonus, commissions, or a production bonus. e regular rate excludes discretionary bonus payments, as long as both the decision to pay and the amount of the payment are at the employer's discretion. Examples may include a payment as a "thank you" or recognition of outstanding work. Because they are not part of the regular rate, you do not have to factor discretionary bonuses into overtime. 1. Computing the regular rate: non- discretionary sales bonus. Here is an example of a non-discretionary sales bonus that changes the rate. e employee earns an extra $50 if the employee hits a weekly sales target. e employee makes $20/hour and works 50 hours this week. In the incorrect example (see Chart No. 1), you can see that overtime was calculated without factoring in the bonus. In the correct example, you can see that the regular rate, inclusive of the bonus, for calculating overtime is $21. Computing overtime on the regular rate rather than the hourly rate adds $5 that week. Over a year's time, that equates to $260 for that employee. 2. Computing the regular rate: commission. Commissions are treated similarly to non- discretionary bonuses, unless the employee meets certain exemptions under the FLSA. Here is an example of a commission that changes the rate (see Chart No. 2 on page 26). A technician (not flat-rate) gets paid $20/hour and 1.5% of labor turned. He or she worked 50 hours that week and turned $4,000 of labor. In the incorrect example, you can see that overtime was calculated without factoring in the commission. In Dennis McCarron, former executive director of Dealer Strategic Planning Inc. and now a partner at Cardinal Brokers LLC, says wage and hour violations con- tinue to be a hot topic in the industry. He first wrote about it in the September 2018 issue of Modern Tire Dealer. Here are the three basics he be- lieves you need to be follow- ing, based on current law. 1. Only one salaried em- ployee per location. "This employee must have the ability to make independent decisions, which normally translates into hiring and firing," he says. "And do not get creative, as the Department of Labor pulls people into a closed office and interrogates them, knowing you may have coached them on certain answers. They will threaten them with punish- ment for lying." 2. Keep accurate re- cords. "Clock in when you get there, clock out for 30 min for lunch, not a min- ute less. Make accurate corrections where neces- sary. Discipline employees who 'forget' to clock in and out." 3. Spiffs need to be calcu- lated for overtime premium. "Make sure your payroll services know how to do it," says McCarron. "They will not automatically cal- culate spiffs/bonuses with overtime premiums even though it's the law. You have to instruct them to do it." In a Notice of Proposed Rulemaking: Regular Rate published on March 28, 2019, the Department of Labor said it was looking to clarify "whether certain kinds of perks, benefits or other miscellaneous items must be included in the regular rate." Under cur- rent rules, employers "are discouraged from offering more perks to their employ- ees as it may be unclear whether those perks must be included in the calcula- tion of an employee's regu- lar rate of pay." Wage violations 3 basics that will help you avoid penalties Chart No. 1: Regular rate, non-discretionary sales bonus Pay (Incorrect) Pay (Correct) Straight time $20 x 50 hours = $1,000 Straight time $20 x 50 hours = $1,000 Overtime premium $10 x 10 hours = $100 Bonus $50 Bonus $50 Total pre-overtime $1,050 Total $1,150 Regular rate $1,050/50 hours = $21 Overtime premium $10.50 x 10 hours = $105 Total $1,155

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