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Overtime variable pay calculations
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Overtime variable pay calculations
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We are working on this currently and I have read the DOL regs backwards and forwards. Any insight would be appreciated as there is a difference of opinion with the decision makers.
Situation: empl
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Forums » Topic Forums » Benefits & Compensation » Overtime variable pay calculations
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Overtime variable pay calculations
posted at 12/23/2009 6:30 AM EST
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Posts: 6
First: 12/23/2009 Last: 3/2/2010 |
We are working on this currently and I have read the DOL regs backwards and forwards. Any insight would be appreciated as there is a difference of opinion with the decision makers.
Situation: employee works 160 hours in the calculation period including 12 hours of overtime. Said employee also received 500 variable pay for this period. I understand the regs to indicate this: variable pay of $500 is divided by total hrs worked (160) = $3.125. one half of this amount $1.5625 is then multiplied by the OT hours in the period which is 12 = the additional amount of $18.72 to be paid. |
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Overtime variable pay calculations
posted at 12/23/2009 7:30 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
That's sounds correct although we do it just a bit differently.
We take all pay (160 hours pay both regular & OT plus the $500) and divide it by the total number of hours to get the Regular Rate of Pay (RRP) for that time period. Then we get the OT Rate by multiplying the RRP by .5. Take the OT rate times the # of OT hours to get what OT should have been paid. Subtract out what has already been paid to get what is owed. |
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Overtime variable pay calculations
posted at 12/23/2009 7:59 AM EST
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Posts: 6
First: 12/23/2009 Last: 3/2/2010 |
Thanks rrupert, although when I use the method you describe, there is a substantial difference in what would be owed.
In my research, from the Federal Register 29 CFR 778.119 it states: If the calculation and payment of the commission cannot be completed until sometime after the regular pay day for the workweek, (this is our situation) the employer may disregard the commission in computing the regular hourly rate until the amount of commission can be ascertained. Until that is done he may pay compensation for overtime at a rate not less than one and one-half times the hourly rate paid the employee, exclusive of the commission. When the commission can be computed and paid, additional overtime compensation due by reason of the inclusion of the commission in the employee's regular rate must also be paid. To compute this additional overtime compensation, it is necessary, as a general rule, that the commission be apportioned back over the workweeks of the period during which it was earned. The employee must then receive additional overtime compensation for each week during the period in which he worked in excess of the applicable maximum hours standard. The additional compensation for that workweek must be not less than one-half of the increase in the hourly rate of pay attributable to the commission for that week multipled by the number of hours worked in excess of the applicable maximum hours standard in that workweek. |
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Overtime variable pay calculations
posted at 12/24/2009 4:02 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
http://payroll-taxes.com/articles/overtimeBasics.html
Since you are splitting commission over all hours worked and it becomes part of the RRP, it is my understanding that you do the calculation using all hours worked. Maybe I am just not stating it right, but I do it as it states in the reference above. I know many payroll professionals who refer to the site above as an explanation for payroll principles. I would be very very surprised if it were wrong. |
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Overtime variable pay calculations
posted at 12/24/2009 6:29 AM EST
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Posts: 6
First: 12/23/2009 Last: 3/2/2010 |
rrupert - I checked out the site and see the data you have referenced. I didnt clarify that this situation was an non exempt hourly situation where the variable pay comes after the intial wages have been paid. When you look at the CFR regs you see this example when we attribute equal portion of variable pay allocated to each hour worked in the calculation period.
Example: An employee received commissions of $192 for a commission computation period of 96 hours, including 16 overtime hours (i.e., two workweeks of 48 hours each). Dividing the $192 by 96 gives a $2 increase in the hourly rate. If the employee is entitled to overtime after 40 hours in a workweek, he is due an additional $16 for the commission computation period, representing an additional $1 for each of the 16 overtime hours. Comparing this to the example you provided, there is a substantial difference is what is showing as owed compensation. Using the formula from the DOL regs, my calculations are much less than it would be following your formula. I see in the regs, where the premium ot compensation for variable must not fall under the minimum allowed. I am having a hard time wrapping my head around this and understanding, I appreciate your pateince and hope I don't sound contrite with my questions. |
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Overtime variable pay calculations
posted at 12/28/2009 3:29 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
I do think that example works for your situation which seems to be a lot simpler than mine.
My situation gets a bit messier as I have employees who work at more than one hourly rate during a pay period and over the whole month of commission (don't ask, it's not pretty). So I can't assume that the overtime for each hour is equal. And I have to take all wages and hours into account to get back to that regular rate of pay. You are lucky in the fact that your RRP doesn't change. |
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