Did you know there is a difference between the regular rate of pay and your employee’s base rate? When it comes to overtime it’s important to identify your employee’s regular rate of pay in order to stay in compliance with wage and hour laws.
Here at TPPS, where we offer full-service HR management, this is one of the first questions we ask during our initial assessment. Most of the time we get a look of confusion from our clients when we ask them if their payroll system is calculating the regular rate of them. Many have no idea of this concept, but it is an important topic that all companies should be paying attention to.
Here’s what you need to know…
There are many different scenarios and rules surrounding calculating the regular rate.
An employee’s regular rate is calculated by taking the total amount paid for a defined period of time, including earnings from non-discretionary bonuses (such as performance-based), then dividing that amount by the total hours worked. The period of time depends on a few things – when was the bonus earned, were there multiple pay rates in play during the workweek and so on.
For example, let’s say Patricia earns $14 per hour for inside sales work and $18 per hour for bookkeeping work (she has what we call multiple pay rates). This week, she worked 24 hours in inside sales and 20 hours as a bookkeeper. She also received $50 in commissions that are attributable to this workweek. Her regular rate of pay for this workweek would be calculated as follows:
($14 x 24) + ($18 x 20) + $50 / 44 hours = Regular Rate of $16.95 for this workweek
Under Federal and California law, non-exempt employees must be paid 1.5 times their regular rate of pay for overtime hours. This means that Patricia’s overtime rate would be $25.43 per hour for the workweek in our example.
What gets included in wages?
Well, it depends and it’s complicated. Federal and State laws differ and under California law, the types of compensation (such as a flat rate vs. performance-based bonus) also change the way the calculations are done.
How do I get this right?
This blog was not intended to give you all the answers – because frankly, not one piece of literature can – we will leave you with this last note. Many payroll providers claim that they have you covered and in compliance with most areas of the law, but what we actually see is that that most of them do not automatically apply regular rate rules to your payroll calculations – and as you’ve learned, they really can’t without fully understanding your compensation plan and all of the details that go into it. So, if you rely on your payroll provider to worry about this for you, it’s likely that it’s been overlooked.
Contact TPPS today to have one of our experts take a look and ensure you are in compliance.