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CHAPTER 2. COMPUTING & PAYING WAGES AND SALARIES Developed by Lisa Swallow, CPA CMA MS. Fair Labor Standards Act. FLSA - Federal Wage & Hour Law provides for two types of coverage Enterprise Coverage All EE of interstate commerce And $500,000 or more annual gross sales

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CHAPTER 2

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Chapter 2

CHAPTER 2

COMPUTING & PAYING WAGES AND SALARIES

Developed by Lisa Swallow, CPA CMA MS


Fair labor standards act

Fair Labor Standards Act

  • FLSA - Federal Wage & Hour Lawprovides for two types of coverage

  • Enterprise Coverage

    • All EE of interstate commerce

    • And $500,000 or more annual gross sales

  • Individual Coverage

    • EE whose company may not meet enterprise coverage, but are in fringe occupation are covered individually (for example packaging)

      plus many nonprofits

  • All companies in manufacturing or personal care ARE covered!

  • Manyfamily businesses are exempt!


Flsa domestic help

FLSA & Domestic Help

  • Domestic help includes nannies, gardeners, chauffeurs, etc.

  • These employees must earn minimum wage and overtime if they:

    • work more than 8 hours/week or

    • earn $1000 in a calendar year

  • “Live-in” help need not be paid overtime


What is minimum wage

What is Minimum Wage?

  • Includes all rates of pay including, but not limited to:

    • Commissions

    • Bonuses and severance pay

    • On-call or differential

  • Exceptions to minimum wage –

    • FT students employed at their own university - 85%

    • Student learners at Vocational Technical school - 75%

    • Retail or farms employing FT students - 85%

    • Physically or mentally impaired employees with certification

      *Minimum wage is very different from ‘living wage’. Over 40 US communities now have local ordinances mandating employers who have local government contracts to pay a living wage to their employees (the amount minimally necessary to live in that community).


Tipped employees

Tipped Employees

  • Anyone averaging $30/month is a “tipped employee”

  • This is FLSA, not state law

  • Small Business Job Protection Act froze minimum tipped wages at $2.13/hour, but EE still must make $5.15/hour when combining tips/wages (5.15 x 40 = $206 minimum weekly gross)

  • ER gets credit for tips received between $2.13 and $5.15

  • Examples of tips received for 40-hour work week

    • #1. Reported tips = $43

    • Is $85.20 (minimum tipped wages) + $43 > $206

    • No - ($206 - 43 = $163) so ER must pay additional wages ($163 - 85.20)

    • #2. Reported tips = $1189

    • Is $85.20 + $1189 > $206

    • Yes so ER pays $85.20 wages

    • #3. Reported tips = $111

    • Is $85.20 + 111 > $206

    • No - ($206 - 111 = $95) so ER must pay additional wages ($95 - 85.20)


40 hour work week

40 Hour Work Week

  • Established by corporate policy (for example 12:01 a.m. Saturday - 11:59 p.m. Friday)

  • FLSA doesn’t require OT for 8+ hour days but for 40+ hour weeks, although some states require daily overtime over 8 hours

  • FLSA sets OT at 1.5 times regular pay

    • Exception 1 - Hospital EE, overtime for 80+ hours in 14 days

    • Exception 2 - EE receiving remedial education

    • Exception 3 - State/federal government agencies

    • Exception 4 - Union mandate

  • Emergency public safety EE -can accumulate 320 hrs x 1.5 = 480 hours compensatory time instead of OT

  • EE of state or interstate governmental agency – can accumulate 160 x 1.5 = 240 hours compensatory time instead of OT


  • Exempt vs nonexempt

    Exempt vs. Nonexempt

    Putting someone on salary doesn’t mean they’re exempt!!

    “Exempt” means exempt from overtime provisions of FLSA

    • 1. Executives

      • discretionary and supervisory powers

      • nonexempt work cannot exceed 20%

    • 2. Professional

      • creativity and intellectual work

      • uses independent judgment

      • nonexempt work cannot exceed 20%

    • 3. Administrative

      • discretionary work

      • directly assists executive

      • nonexempt work cannot exceed 20%

    • 4. Outside sales

      • primary sales work is away from the employer’s place of business

    Must be paid on salary and gross at least $250/week


    Child labor laws

    Child Labor Laws

    • Under age 16 cannot work in construction, mining, manufacturing, etc.

    • Under age 18 cannot work in hazardous jobs

    • Under 16 years old limited to employment in retail and food/gas service:

      • only 7 a.m. - 7 p.m. (until 9 p.m. allowed in summer)

      • 3 hours per day - 18 hours per week – school year

      • 8 hours per day - 40 hours per week – summer

    • In agricultural occupations an employee as young as 10 can work

      • only from 6/1 - 10/15

      • subject to many strict limitations

      • violations can result in up to $10,000/offense

      • ER needs to have certificate of age on file


    Compensable vs noncompensable time

    Compensable vs. Noncompensable Time

    • Travel (when part of principal workday) is consdered work time

    • Training (when for ER benefit/required) is compensable

    • Rest periods under 20 minutes are compensable (can’t make EE ‘check out’)

    • Prep at work station (but not clothes changing, shower) is compensable

    • Meal periods are not considered compensable unless employee must perform some tasks while eating

    • On call time is not compensable if employee can spend time as he/she chooses

    • FLSA does not require:

      • Pay on holidays, vacation, sick, extra on weekends

      • Pay while waiting to check in/out of plant or for paycheck


    Timekeeping

    Timekeeping

    • FLSA requires employers to retain time/pay records

    • Employer in traditional office environment can use:

      • Time sheet

      • Time cards

      • Computerized time/attendance records

        • card-generated systems (computerized totals)

        • badge systems (microchips or bar codes)

        • cardless/badgeless system - EE enters PIN

    • Employer in nontraditional office environment can use:

      • Touch screen technology (PC screen reads touch input)

      • Internet

      • Wireless transmission (cell phones, PDAs)

      • Biometrics - iris scan, fingerprint or some other unique characteristic to ensure security


    How wages are paid

    How Wages are Paid

    • 1.Check

      • Many companies keep a separate operating account

      • Write a check from the regular account to a payroll account for net amount

      • Easier to reconcile when payroll checks are written against one account

  • 2.EFT

    • Electronic Funds Transfer

    • Data transmitted to bank through ACH (Automated Clearing House)

    • Employees receive “stub” or statement showing gross pay and deductions and net amount deposited to account


  • Pay periods

    Pay Periods

    • Biweekly (26) - same hours each pay period

    • Semi-monthly (24) - different hours each pay period

    • Monthly (12)- different hours each pay period

    • Weekly (52) - same hours each pay period

      ER can have different pay periods for different groups within same company!


    Steps to follow when calculating gross pay

    Steps to Follow when Calculating Gross Pay

    • Annualize Salary

    • Calculate “regular” gross

    • Calculate hourly pay

    • Calculate OT rate (1.5 x hourly rate)

    • Add overtime pay to “regular” gross


    Examples calculating gross paycheck 1

    Examples - Calculating Gross Paycheck (#1)

    FACTS: Salary quoted is $1,500/month - paid weekly - 43 hours in one pay period

    • $1,500 x 12 = $18,000 annual

    • $18,000/52 = $346.15 weekly gross

    • $346.15/40 hours = $8.65 regular rate

    • $8.65 x 1.5 = $12.98 OT rate

    • ($12.98 x 3) + $346.15 = $385.09 gross


    Practice calculating gross paycheck 2

    Practice Calculating Gross Paycheck (#2)

    FACTS: Salary quoted is $2,000/month - paid

    semi monthly - 4 hours OT in one pay period

    • $2,000 x 12 = $24,000 annual

    • $24,000/24 = $1,000 semimonthly gross

    • $24,000/52 = $461.54

    • $461.54/40 = $11.54 regular rate

    • $11.54 x 1.5 = $17.31 OT rate

    • ($1,000) + ($17.31 x 4) = $1,069.24 gross


    Practice calculating gross paycheck 3

    Practice Calculating Gross Paycheck (#3)

    FACTS: Salary quoted is $2,000/month for 38 hour work week - paid semimonthly.

    OT - regular pay between 38-40 hours/week; 1.5 after 40. Of 16 hours of OT in one pay period only 12 over 40

    • $2,000 x 12 = $24,000 annual

    • $24,000/24 = $1,000 semimonthly gross

    • $24,000/ (38 x 52)* = $12.15 regular rate

    • $12.15 x 1.5 = $18.23 OT rate

    • $1,000 + (4 x $12.15) + (12 x $18.23) = $1267.36 gross

      *Denominator is always number of hours in full time year - may be different between companies


    Practice calculating gross paycheck 4

    Practice Calculating Gross Paycheck (#4)

    FACTS: Salary quoted is $1,600/month for 35 hour work week -paid semimonthly. OT - regular hourly pay between 35-40 hours/week; 1.5 after 40 hours. Of 16 hours of OT in one pay period, 6 hours are over 40 hours weekly

    • $1,600 x 12 = $19,200 annual gross

    • $19,200/24 = $800 semimonthly gross

    • $19,200/(35 hours x 52 weeks) = $10.55 regular rate

    • $10.55 x 1.5 = $15.83 OT rate

    • $800 + ($10.55 x 10) + ($15.83 x 6) = $1000.48 gross


    Practice calculating gross paycheck 5

    Practice Calculating Gross Paycheck (#5)

    FACTS: Salary quoted is $2,200/month -

    paid biweekly - 11.5 hours OT in one pay period

    • $2,200 x 12 = $26,400 annual

    • $26,400/26 = $1,015.38 each biweekly pay period

    • $26,400/2080 = $12.69 regular rate

    • $12.69 x 1.5 = $19.04 OT rate

    • $1,015.38 + (11.5 x $19.04) = $1,234.34 gross


    Piece rate

    Piece Rate

    • FLSA requires piecework earners to get paid for nonproductive time

    • Must equal minimum wage with OT calculated one of two ways:

      Method 1

      • units produced x unit piece rate = piece rate earnings

      • piece rate earnings/total hours = hourly rate

      • hourly rate x 1/2 = OT premium

      • piece rate earnings + (OT premium x OT hours) = gross pay

        or

        Method 2

      • (units produced in 40 hours x piece rate) +

        (units produced in OT) x (1.5)(piece rate)


    Practice calculating piece rate 1

    Practice Calculating Piece Rate (#1)

    FACTS: 4,812 units inspected in a 47.25 hour week (600 of those units produced in extra hours). Employee is paid .12/each.Calculate using both methods.

    Method 1

    • (4,812 x .12) = 577.44 regular piece rate earnings

    • 577.44/47.25 = $12.22 hourly rate

    • $12.22 x .5 = $6.11 OT premium

    • $577.44 + ($6.11 x 7.25 hrs.) = $621.74 gross

      Method 2

    • (4,212 x .12) + (600 x [.12][1.5]) = $613.44 gross


    Chapter 2

    Practice Calculating Piece Rate (#2)

    Facts: Inspection rate = $.08/unit. An EE inspected 6897 units in 43.5 hours. She inspected 423 of these in overtime. Calculate using both methods.

    Method 1

    • (6897 units x .08) = $551.76 regular piece rate earnings

    • $551.76/43.5 hours = $12.68 hourly rate

    • $12.68 x .5 = $6.34 OT premium

    • $551.76 + (6.34 x 3.5) = $573.95 gross

      Method 2

    • (6474 x .08) + (423 x .12) = $568.68 gross


    Commission

    Commission

    • Commission can be used in many combinations (with base salary or stand alone) - as long as minimum wage provisions are met

    • For example: Sam sold $40,000 of product. His quota is $31,500. He gets 2% in excess of quota. His annual base salary is $30,000. He gets paid biweekly - calculate gross paycheck:

      • $30,000/26 = $1153.85 base earnings

      • (8500 x .02) = $170 commission

      • $1153.85 + 170.00 = $1323.85 gross


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