When calculating overtime, the regular rate of pay on which the ‘time and a half’ is calculated is based on total compensation divided by total hours worked. But what constitutes total compensation? Total compensation includes – in addition to wages and salary – commissions, non-discretionary bonuses, cost of room, board and other facilities provided primarily for the employee’s benefit.
Exclusions from the regular rate include gifts, discretionary bonuses, payments for time not worked, expense reimbursement and other items. The Federal Department of Labor has proposed excluding from total compensation employer payments for wellness classes, fitness classes, employee discounts, pay for unused leave benefit plans and tuition programs. Public comment has ended on this proposed rule and final rules are expected later this Summer.
Salary Basis Test for Exemption from Overtime
In March of 2019, the Department of Labor proposed a new minimum weekly salary level for employees to be considered as exempt from overtime calculations. This salary test is in addition to the duties test, commonly referred to as the “White Collar Exemptions”. The current rate is $455 per week or $23,660 per year.
The proposed rate would rise to $679 per week or the equivalent of $35,308 per year. (The original proposal under the Obama administration was $913 per week.) The rule proposes that employers may satisfy up to 10% of the salary level with certain nondiscretionary bonuses, incentives or commissions. The proposal does not include automatic annual updates of the rate as was proposed by the Obama administration in 2016. However, the DOL expects to update the rate every four years.
The comment period for this proposed change ended in May and final rules are expected this Summer.
Exempt Employee Pay Docking
There were several questions during the session concerning docking of pay for Exempt employees. Generally speaking, the FLSA states that exempt employees must be paid their full salary for any week in which any work is performed. Pay may not reduced as long as the employee is ready, willing and able to work even if no work is available. Finally, any permitted reductions must be in full day increments or the employer risks treating the employee as an hourly employee (in other words, subject to overtime).
So, what are permitted pay docking? Personal reasons other than sickness or disability for one or more full days; Sickness or disability for one or more days when there is bona fide plan, policy or practice of wage replacement benefits – “Sick Leave”, in other words; FMLA leave; Deductions to offset amounts paid for jury fees, witness fees or military pay are all examples of permitted full pay docking.
Several examples were provided for review by the presenter and participants.
An exempt employee leaves work early. Can their pay be docked for the hours not worked in the day? As long as they were working for any part of the day, they have to be paid for the entire day.
An exempt employee leaves work early due to a doctor’s appointment and there is a paid time off plan in place for that employee, can the employer require the employee to take PTO for the hours not worked in the day? YES. As long as the employee has time available in their PTO plan, the employer can use hours from the plan to ‘make whole’ the work day.
An exempt employee does not show up for work due to inclement weather. Can the employer dock the employee the full day of pay? As long as the employee has not been notified by their supervisor that the worksite is closed and there is no provision in company policies allowing use of PTO, then YES, the employer can dock the employee for the day.
What if the employee shows up late (or works remotely for part of the day)? Then NO, the employer cannot dock the exempt employee for a partial day of work.