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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

COMPUTING & PAYING WAGES AND SALARIES

Developed by Lisa Swallow, CPA CMA MS


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

  • 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?

  • 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

  • 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

  • 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

    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

    • 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

    • 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

    • 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

    • 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

    • 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

    • 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)

    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)

    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)

    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)

    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)

    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

    • 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)

    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


    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 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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