The 10 Most Common Misconceptions about Payroll and How to Avoid
1 The 10 Most Common Misconceptions about Payroll and How to Avoid them Presented on Wednesday, May 21, 2014 ©2014 The Payroll Advisor 2 RCH Credit 3 To earn RCH, you must Stay on the webinar for the full 60 minutes Be watching the webinar using your unique URL Certificates delivered electronically, to email address with which you registered Certificates delivered no later than June 21st About the Speaker 4 Vicki M. Lambert, CPP, is President and Academic Director The Payroll Advisor, a firm specializing in payroll education and training. The firm, through its website www.thepayrolladvisor.com, provides unique and expert services for anyone dealing with the complexities and technicalities of the payroll process. As an adjunct faculty member at Brandman University, Ms. Lambert is the creator and instructor for the Practical Payroll Online payroll training program, which is approved by the APA for recertification credits. ©The Payroll Advisor 2014 What Is Our Focus For Today? 5 1. 2. 3. 4. 5. Weekly overtime is the only OT employers need to worry about (federal law always supersedes state law) The workweek is whatever the company defines it as and it can be changed as the need arises The employer gets to decide what is worked time Employees do not have to be paid for sleep, travel time or other type of “unproductive time” Employees have the option to skip meal periods or breaks ©2014 The Payroll Advisor What Is Our Focus For Today? 6 6. 7. 8. 9. 10. Benefit time such as holiday, sick or vacation pay must be included in the computation of overtime Only hourly employees are paid overtime Exempt employee cannot be forced to punch a time clock. If they did their hours exceeding 40 would be considered overtime An exempt employee working in an hourly position does not have to be paid overtime Overtime not approved in advance does not have to be paid ©2014 The Payroll Advisor 7 Misconception #1 Weekly overtime is the only OT employers need to worry about because federal law always supersedes state law ©2014 The Payroll Advisor FACT: Definition of Overtime 8 Overtime pay under the Fair Labor Standards Act is computed at 1-1/2 times the regular rate of pay for all hours worked in excess of the 40 hours in a workweek. There is no limitation on the number of hours an employee may work in any workweek, as long as he/she is compensated in accordance with FLSA requirements. ©2014 The Payroll Advisor But Maybe The States Require… 9 Daily overtime: 1. AK: 8 hour day 2. CA (of course!) after 8 in a day and double time as well after 12 and on the 7th day 3. CO after 12 in a day 4. NV: paid a base rate of one and one half times the minimum wage or less per hour may be entitled to overtime if they work more than 8 hours in any workday. ©2014 The Payroll Advisor But Maybe the States Require… 10 Or special overtime: KY: Work 7 days in one work week, overtime on 7th day OR: certain industries only such as mills, factories or manufacturing ©2014 The Payroll Advisor So Which One Do I Follow? 11 When confronted with differing regulations concerning overtime the employer must: Follow the rule with the higher standard The one that pays the employee more money ©2014 The Payroll Advisor Example: California Overtime 12 Has both daily and weekly overtime. Has both daily and weekly double time. Overtime is paid at one and one half times the regular rate of pay. Double time is paid at two times the regular rate of pay. Let’s do an example: ©2014 The Payroll Advisor Example: California Overtime 13 Employee A has the following timecard for the workweek: Mon Tues Wed Thurs Fri Sat Sun Total Hours 7 8 9 10 0 0 42 8 Under the FLSA he would be paid 40 hours straight time and 2 hours of overtime ©2014 The Payroll Advisor But Under California Law… 14 The employee would be due the following Hours Mon Tues Breakdown Wed Thurs Fri Sat Sun Total Hours 0 42 7 8 9 10 8 Straight 7 8 8 8 8 0 0 39 Overtime 0 0 1 2 0 0 0 3 Total 7 8 9 10 8 0 0 42 Employee A is due 39 straight hours and 3 hours of overtime. So if the employee makes $10 per hour… ©2014 The Payroll Advisor Determine by the Math 15 Federal Law California Law $10 x 40 = $400.00 $10 x 39 = $390.00 $10. x 1.5 = $15 x 2 = $30 $10. x 1.5 = $15 x 3 = $45.00 Total of: $400 + $30 = $430.00 Total of: $390 + $45.00 = $435.00 California is higher so the higher standard is paid ©2014 The Payroll Advisor FACT: Industry Requirements Vary 16 Hospitals have an optional method to compute overtime pay for their employees -- 8/80 rule Overtime computed using a designated work period of 14 consecutive days instead of 7 days Employees paid 1-½ times their regular rate of pay for all hours worked in excess of 8 hours in one day or 80 hours in any 14-day period whichever is the greater number of hours ©2014 The Payroll Advisor 17 Misconception #2 The work week is whatever the company defines it as and can be changed as the need arises ©2014 The Payroll Advisor Workweek Facts 18 The workweek is a fixed and regularly recurring period of 168 consecutive hours (i.e., seven consecutive 24 hour periods) It does not need to coincide with the calendar week, but may start on any day at any hour that is convenient for the employer ©2014 The Payroll Advisor Facts 19 Each workweek stands alone and is independent from each other Once the workweek is established it remains fixed regardless of hours worked Employer is free to change the workweek but the change are permanent and cannot be undone to avoid paying of overtime If changing must pay the higher of overtime due – old workweek compared to new workweek for change-over week ©2014 The Payroll Advisor Public Sector Work Week Facts 20 Special exception to the 40 hour workweek rules gives fire protection and law enforcement the option of using “work periods” of 7 to 28 days. ©2014 The Payroll Advisor Work Period Chart 21 Work Period 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 09 08 07 Fire Protection 212 204 197 189 182 174 167 159 151 144 136 129 121 114 106 98 91 83 76 68 61 53 ©2014 The Payroll Advisor Law Enforcement 171 165 159 153 147 141 134 128 122 116 110 104 98 92 86 79 73 67 61 55 49 43 Hospital Employees Workweek Facts 22 Hospitals have an optional method to compute overtime pay for their employees Called the 8/80 rule Overtime computed using a designated work period of 14 consecutive days instead of 7 days Employees paid 1 ½ times their regular rate of pay for all hours worked in excess of 8 hours in one day or 80 hours in any 14 day period whichever is the greater number of hours ©2014 The Payroll Advisor 23 Misconception #3 The employer gets to decide what is “worked time” ©2014 The Payroll Advisor Hours Worked Facts 24 The FLSA does not give a definition for hours worked. The closest definition is a provision that specifies the term "employ" meaning "to suffer, let, or permit to work". ©2014 The Payroll Advisor The U.S. Supreme Court Has Ruled… 25 Hours worked include: Any time spent in "physical or mental exertion that is controlled or required by the employer." All hours an employee is required to give to an employer. This includes waiting time if it is for the employer's benefit. All the time during a workweek that an employee is required to be on the employer's premises. ©2014 The Payroll Advisor Therefore… 26 To comply with the FLSA, hours worked need to include not only hours actually performing job duties but also any other hours suffered or permitted to work by the employer for the employer's benefit. ©2014 The Payroll Advisor Rounding Practices 27 “Rounding'' practices are acceptable Rounding employees' starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked. ©2014 The Payroll Advisor De Minimis or Insignificant Timekeeping 28 The de minimis rule applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities. ©2014 The Payroll Advisor 29 Misconception #4 Employees do not have to be paid for sleep, travel time or other types of “unproductive time ©2014 The Payroll Advisor Facts 30 Nonexempt employees must be paid for travel that is outside of normal home to work commute On Call may have to be compensated if employee not free to follow own needs Sleeping time depends on circumstances Meeting times may be compensatory as well Training (required) is time worked Waiting time: Engaged to wait or waiting to be engaged ©2014 The Payroll Advisor Travel Time Facts 31 The principles which apply in determining whether or not time spent traveling is working time depend upon the kind of travel involved. These are contained in §785.34 to 785.41of the FLSA/ Portal-toPortal Act ©2014 The Payroll Advisor And… 32 Work Day: The Portal to Portal Act of 1947, excludes from hours worked under the FLSA requirements any hours for time spent by an employee "walking, riding, or traveling to and from the actual place of performance of the principal activity or activities" unless these activities are compensable under the terms of a contract, by custom or by practice. The Portal Act also excludes activities performed before or after the employee's principle activities in a workday. ©2014 The Payroll Advisor Home to Work Ordinary Situation 33 An employee who travels from home before his regular workday and returns to his home at the end of the workday is engaged in ordinary work travel which is a normal incident of employment. This is true whether he works at a fixed location or at different job sites. Normal travel from home to work is not work time. ©2014 The Payroll Advisor Travel That’s All in a Day’s Work 34 Travel spent by an employee in travel as part of his principle activity, such as travel from job site during the workday, must be counted as hours worked. Where an employee is required to report at a meeting place to receive instructions or to perform other work there, or to pick up and to carry tools, the travel from the designated place to the work place is part of the day’s work and must be counted as hour worked regardless of contract, custom, or practice. ©2014 The Payroll Advisor Travel Away From Home Community 35 Travel that keeps an employee away from home overnight is travel away from home. Travel away from home is clearly work time when it cuts across the employee’s workday The employee is simply substituting travel for other duties. ©2014 The Payroll Advisor On Call Hours Facts 36 Example One Example Two Employee who is required to remain on call on the employer’s premises or so close to thereto that he or she cannot use the time effectively for his or her own purposes is working while “on call” Employee who is not required to remain on the premises but is merely required to leave word at his home or with employer or wear a beeper or carry cell phone may not be working while on call but distance and mobility will determine if working ©2014 The Payroll Advisor Sleeping Time Facts 37 Duty for less than 24 hours is working even if permitted to sleep or engage in other personal activities when not busy Duty for 24 hours or more may agree to exclude from hours worked regularly scheduled sleeping periods of not more than 8 hours Adequate sleeping facilitates must be furnished Can usually get uninterrupted sleep No reduction permitted unless at least 5 hours of sleep is taken ©2014 The Payroll Advisor Meeting and Training Time Facts 38 Meeting Time Hours worked unless: Outside of regular work hours Voluntary Not directly related to job No productive work performed during meeting ©2014 The Payroll Advisor Training Time If related to job then it is hours worked regardless of when worked or where— internet at home is still hours worked Waiting Time Facts 39 Engaged to Wait Compensable time Employee is unable to use time personally Short duration normally Time belongs to employer Integral part of job Waiting to be Engaged Usually not Compensable time Employee is dutyfree Time is employees to use for own purpose ©2014 The Payroll Advisor 40 Misconception #5 Employees have the option to skip meal periods or breaks ©2014 The Payroll Advisor Meal and Rest Period Facts 41 No requirement on the federal level for either States: State may have meal period and rest period such as CA. Or just one or the other such as CT which has just meal period. Or they could not address the issue such as such as FL, GA, HI, and ID. Reference for meals: http://www.dol.gov/whd/state/meal.htm ©2014 The Payroll Advisor Meal Period Fact 42 20 states have a meal period requirement for adult workers Usually between 20 and 30 minutes in length Usually without pay Usually after so many hoursexample CA is after 5 hours 33 states have a requirement for a meal period for minors ©2014 The Payroll Advisor WA MT ME ND VT MN OR NH ID WI SD NY WY RI CT MI PA IA NE NV OH IL UT MD WV KS MO NJ DE IN CO CA MA VA KY NC TN AZ OK NM AR SC MS AL GA TX LA FL AK HI 43 Yellow states have required meal periods VI PR ©2014 The Payroll Advisor Rest Periods Facts 44 Fully a state regulations so depends on the state— not all have them Usually 10 minutes for every 4 hours worked or major fractions thereof States with some kind of rest period requirements : CA, CO, KY, NV, OR, VT and WA (VT is a visit toilet provision) Watch for nursing mother provision which is different Reference: http://www.dol.gov/whd/state/rest.htm ©2014 The Payroll Advisor 45 Misconception #6 Benefit time such as holiday, sick or vacation pay must be included in the computation of overtime ©2014 The Payroll Advisor The Facts 46 Overtime pay under the Fair Labor Standards Act is computed at 1 1/2 times the regular rate of pay for all hours worked in excess of the 40 hours in a workweek. There is no limitation on the number of hours an employee may work in any workweek, as long as they are compensated in accordance with the FLSA's requirements. ©2014 The Payroll Advisor Regular Rate of Pay 47 It is a calculated rate and not just the file rate The employer must consider many different payments in accurately calculating the correct rate of pay for overtime hours. ©2014 The Payroll Advisor Regular Rate of Pay … 48 In addition to the contract or file rate, any additional amounts paid for: shift differential, non-discretionary bonuses promotional bonuses cost of living adjustments ©2014 The Payroll Advisor But Does Not Include Nonworking Hours… 49 Payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause are not included in the calculation for overtime ©2014 The Payroll Advisor For Example 50 Employee B worked the following schedule for the workweek under the FLSA M 8 T 9 W 10 TH 8 F 8 SA 0 SU 0 Total Hours 43 ©2014 The Payroll Advisor Hours Breakdown ST OT 40 3 For Example 51 Now let’s say Employee B worked the same hours but Monday was a holiday as designed by the employer M 8 T 9 W 10 TH F 8 8 S A 0 SU 0 Total Hours 43 Hours Breakdown ST HOL OT 35 8 0 Under the FLSA the 8 hours on Monday are not considered hours worked ©2014 The Payroll Advisor For Example 52 M 8 T 9 W 10 TH F 8 8 S A 0 SU 0 Total Hours 43 Hours Breakdown ST HOL OT 35 8 0 The same would apply if Monday were sick leave, vacation time or PTO. However company policy may differ. ©2014 The Payroll Advisor 53 Misconception #7 Only hourly employees are paid overtime ©2014 The Payroll Advisor The Facts 54 Earnings may be determined on a piece-rate, salary, commission or other basis including by the hour FLSA permits an non-exempt employee to be paid on a “weekly salary” or for “periods other than a workweek” such as monthly Although paid on a “salary” basis the employee is not designated as “exempt” but is still “nonexempt’ and therefore subject to overtime May be “fixed” or “fluctuating” workweek ©2014 The Payroll Advisor Weekly Salary Basis 55 If the employee is paid on a weekly salary basis, the regular hourly rate is reached by dividing the salary by the number of hours which the salary is intended to compensate. If the salary covers a period longer than a workweek, such as biweekly, monthly, etc., it must be converted to a weekly equivalent. ©2014 The Payroll Advisor Fixed Work Weeks 56 Where employees are paid a salary for a fixed workweek, (salary intended to cover only a specified number of hours per week, i.e. 37 1/2 or 40) total earnings are divided by the number of "fixed" hours rather than the number of hours worked. Example: Joe is hired at a salary of $500 per week. It is understood that this salary is compensation for a regular workweek of 35 hours or $14.29 per hour. When overtime is worked Joe is entitled to receive $14.29 for each of the first 40 hours and $21.44 (time and one half) for each hour thereafter. ©2014 The Payroll Advisor Biweekly Payroll Example Fixed Work Week 57 Sylvia is hired at a weekly salary of $500 a week. The salary is based on a fixed workweek of 40 hours. She worked 50 hours her first week and 45 hours her second week of a biweekly payroll ©2014 The Payroll Advisor The Math… 58 Week One Week Two $500 40 = $12.50 $12.50 x 10 = $125.00 $12.50 x .5 x 10 = $62.50 $500 + $62.50 + $125.00 = $687.50 $500 40 = $12.50 $12.50 x 5 = $62.50 $12.50 x .5 x 5 = $31.25 $500 + $62.50 + $31.25 = $593.75 The total is: $687.50 + $593.75 = $1281.25 ©2014 The Payroll Advisor Fluctuating Work Weeks 59 Where employees are paid a salary for a fluctuating workweek (salary intended to compensate for an entire workweek, regardless of the number of hours actually worked), total earnings are divided by the number of hours actually worked. And since straight-time compensation has already been paid, the employee must receive additional overtime pay for each overtime hour worked in the workweek at not less than one half the regular rate. ©2014 The Payroll Advisor Example Fluctuating Work Week 60 Brenda works no more than 50 hours and is compensated on a fluctuating workweek basis at a weekly salary of $400 per week. During the course of four weeks she works 40, 44, 50 and 48 hours. To get the regular rate of pay the total hours are divided into the salary of $500 for each of the four weeks. ©2014 The Payroll Advisor Let’s Do the Math… 61 The regular rate of pay in each of these workweeks is $10.00, $ 9.09, $8.00 and $8.33. Since the straight time for all hours worked has already been paid, only additional half time pay is due. Brenda would be paid the following for each of the workweeks: Week 1: $400.00 Week 2: $418.18 ($9.09 x .5 x 4 = $18.18) Week 3: $440.00 ($8.00 x .5 x 8 = $33.36) Week 4: $433.36 ($8.33 x .5 x 8 = $33.36) ©2014 The Payroll Advisor FACT: Additional Payments for Exempt Employees 62 541.604: Similarly, the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straighttime hourly amount, time and one-half or any other basis), and may include paid time off. ©2014 The Payroll Advisor 63 Misconception #8 Exempt employees cannot be forced to punch a time clock. If they did their hours exceeding 40 would be considered overtime ©2014 The Payroll Advisor Facts About Tracking Exempt Employee Hours: 64 The DOL does not restrict employers from requiring any employee to track time Tracking time alone does not threaten exempt status Exempt Employees must be paid on a “salary basis” as long as that is not violated tracking hours is acceptable ©2014 The Payroll Advisor Payroll Practices That Do Not Violate the Salary Basis Test 65 Taking deductions from exempt employees accrued leave accounts Requiring exempt employees to keep track of and record their hours worked Requiring exempt employees to work a specified schedule Implementing bona fide, across-the-board schedule changes ©2014 The Payroll Advisor 66 Misconception #9 An exempt employee working in an hourly position does not have to be paid overtime ©2014 The Payroll Advisor The Facts About Exempt Employees Doing Nonexempt Work 67 It depends on whether or not the nonexempt work is concurrent with the performance of their exempt work—it is determined on a case by case basis Exemptions are normally applied on an individual workweek basis—Employees performing exempt and non-exempt duties in the same workweek are normally not exempt in that workweek ©2014 The Payroll Advisor 68 Misconception #10 Overtime not approved in advance does not have to be paid ©2014 The Payroll Advisor Therefore… 69 To comply with the FLSA, hours worked need to include not only hours actually performing job duties but also any other hours suffered or permitted to work by the employer for the employer's benefit. ©2014 The Payroll Advisor Which Means… 70 Work not requested but suffered or permitted is work time. For example, an employee may voluntarily continue to work at the end of the shift. He may be a piece worker, he may desire to finish an assigned task or he may wish to correct errors, prepare time reports or complete other duties. The reason is immaterial. If the employer knows or has reason to believe the employee is continuing to work, the time is working time and must be paid. ©2014 The Payroll Advisor Therefore… 71 In all such cases, it is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. Employers cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so. (Section 785.11, 12, & 13.) ©2014 The Payroll Advisor Are There Any Questions? 72 How Can Ascentis Help Me? 73 Ascentis Payroll Process payroll in real-time, ensuring 100% accuracy, flexibility and control Reduce payroll processing time by as much as 30% Information is electronically at your fingertips. By using Ascentis ESS payroll information can also be accessed by employees from anywhere and at anytime RCH Credit 74 Once approved, to earn RCH, you must Stay on the webinar for the full 60 minutes Be watching the webinar using your unique URL Certificates delivered electronically, to email address with which you registered Certificates delivered no later than June 21st. Download Slides? Watch again? 75 On-Demand Webinars? 76 The ABC’s of Payroll Frequencies Form 941: All You Need to Know Going Paperless in Payroll Handling Unclaimed Wages Travel Pay Fringe Benefits Third Party Sick Pay And many more Watch from anywhere, at anytime, at no cost to you! 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