There are two parts of federal overtime laws that employers often get wrong. The reason is that the answer doesn't make logical sense, and many employers treat their personnel and payroll policies as if common sense should prevail.
The first area where employers get into trouble is thinking that having a bi-weekly payroll somehow allows them to count overtime only after 80 hours are worked in the two-week period instead of after 40 hours each week.
Let me provide an example. Your company pays employees every two weeks and the pay week is defined as Monday through Sunday. On Thursday, non-exempt employee John Doe asks for Friday afternoon off because he just found out his daughter will be starting in UK's softball game in Lexington. He offers to work through lunch the following week to make up the time. He doesn't want to touch his five days of vacation time since the family is going to Florida for fall break.
I am very sorry to report that you cannot just consider the lunch work in week two as equal for the time off in week one. Mr. Doe's paycheck must be paid correctly for the first week (which probably means a reduction of a few hours of pay), and then again paid correctly for the second week, including any overtime if the daily working through lunch results in more than 40 hours of work.
Please note, however, that if Mr. Doe had worked through lunch Monday through Thursday of week one, then it would have been possible to ask for Friday afternoon off without resulting in any overtime hours for the week.
The other area where employers end up with payroll problems relates to the calculation of the regular rate of pay for overtime purposes when a non-discretionary bonus is paid. Any such bonus payment requires the recalculation of any overtime already paid during the applicable time period.
Again, an example. Your company offers an annual $500 incentive to all employees if it reaches certain sales and profitability goals for the year.
If the values are reached and the money is paid, the payroll department must also refigure each non-exempt employee's hourly rate of pay factoring in this extra $500. Then, any overtime that was paid during the year must be recalculated based on this revised rate of pay.
The result is that every employee will receive their $500 plus a differing amount based on the number of straight-time hours and overtime hours they worked during the year.
By the way, the same theory holds if you offer a quarterly bonus for minimizing scrap in a production facility or a monthly bonus for perfect attendance. You have to factor in the bonus payment to that quarter's or month's straight-time hours and then pay the small amount extra for any overtime already worked in that quarter or month.
Next month, I will outline the new proposed overtime rules as recently issued by the Department of Labor.
Randy Fox, SHRM, SCP, SPHR, is founder and senior partner of Capstone HR Services, Inc.