Wage & Hour Workshop Avoiding Payroll Miscalculations and - - PowerPoint PPT Presentation

Wage & Hour Workshop

Avoiding Payroll Miscalculations and Paystub Violations

Michael W. Kelly Nisha S. Patel

Paystub Basics (Labor Code 226)

• Timing and Form

Itemized Statement issued at time of payment

• f wages

Detachable part of the check

OR

Separately when wages paid by personal check

• r cash

2

Paystub Basics (Labor Code 226)

• Itemized Statement Contents

Gross Wages Earned Total Hours Worked (except exempt salaried) Piece-rate units earned and any applicable piece rate ALL deductions

– Deductions made at EMPLOYEE’s orders may be aggregated

Net Wages earned Inclusive dates of the period for which paid Employee name and last four digits of SSN Name and address of the employer

Paystub Basics (Labor Code 226)

• Itemized Statement Contents

All applicable hourly rates in effect during the pay period and the corresponding

number of hours worked at each hourly rate.

– For temp agencies, this must be broken down by assignment.

Records must be maintained at worksite or central location in California for 3

years.

Current and former employees have right to inspect or copy records upon

reasonable request.

You may charge employees the actual cost of reproduction. Comply within 21 days of request.

Paystub Basics (Labor Code 226)

• Damages

Employees suffering injury from a “knowing and intentional failure to comply” are

entitled to the greater of

– All actual damages

OR

– $50 for the first infraction and $100 for each subsequent pay period

Damages capped at $4,000 PLUS costs and reasonable attorneys’ fees.

Paystub Basics (Labor Code 226)

• Employees Deemed Injured

No paystub supplied Cannot promptly and easily determine from wage statement alone information

regarding pay including gross, net or applicable hourly rates

Wage Basics

• Regular Rate of Pay

Normally

– Regular Rate = Total Pay/Total Hours Worked – Often, Regular Rate = Hourly Rate

Special Cases

– Standby Pay – Bonuses and other NON-DISCRETIONARY incentives – Non-exempt commissioned employees – Payments other than cash

Bonuses

• Bonuses paid as gifts for past service and not dependent on

hours worked, production or efficiency are not included.

• Bonuses that are announced to induce greater performance or to

remain with company which are not discretionary are included.

Bonus Example

• Basic Calculation

Hourly rate -- $10.00 Hours Worked – 45 hours per week for 4 weeks Regular Pay = $10.00 x 40 hours x 4 weeks = $1,600 Overtime Pay = $15.00 x 5 hours x 4 weeks = $300 Total Pay = $1,900

• Add a $75 bonus announced if employees complete project on

time:

Regular Rate = ($1,800 + $75)/ 180 hours = $10.42 Overtime Pay = $15.62 x 20 hrs = $312.40 The $75 bonus actually yields an extra $87.40 in compensation

Special Regular Rate Rules

• Gifts if not dependent on hours worked, efficiency, etc.
• Payments not for hours worked – vacation, holidays, illness.

(Note, as the $ come out of numerator, hours must come out of denominator.)

• Uncontrolled Standby Pay IS included despite being pay for not

working.

• Show-Up or Reporting Pay and Call-Back Lump Sum pay require

special consideration

Call Back Pay

• Assume 40 regular hours and 3 days with call backs where

employee worked 1 hour but was guaranteed 2 hours of call back pay at $15 rate.

• Regular Rate

40 hrs x $10/hr = $400 [Regular Hours Worked] 3 hrs x $10/hr = $30 [OT Call Back Hours Worked] 3 hrs x $15/hr = $45 [Call Back for Unworked] NOT INCLUDED Regular Rate = $430/43 Hours = $10 hr.

Call Back Pay

• Overtime Premium = ½ Regular Rate x OT Hours

3 hrs x $5.00 = $15 OT premium

• Total Pay for Week

Regular Pay = $400 OT Pay = $45 Call-Back Pay = $45 Total is $490

What Makes This Hard?

• Once the bonus is paid for an incentive earned based on past

performance, the regular rate for the past period needs to be recalculated.

Using our Bonus example, if the employer did not know the $75 bonus was earned

until after the close of the pay periods, it would have to go back and recalculate the regular rate to add in the additional $12.40.

This additional time in past pay periods needs to be clearly recorded on the pay

stub.

Where the regular rate varies by week, this may require many new lines or an

entirely separate check

What Makes This Hard?

• Allocating bonuses across pay periods

If bonus is for completing project and is paid in first pay check AFTER the project

is completed, the bonus is not being allocated to the actual hours during which it was earned.

Defining the bonus period is important. Bonus periods often DO NOT align with pay periods

– Contrast quarterly or monthly incentives with bi-weekly payrolls so the calendar periods

DO NOT align with the bonus period.

– This means that payroll has to recalculate the regular rate for some whole pay periods

and also certain “rump” days at the beginning or end of contiguous pay periods.

Avoiding Recalculation Issues

• If bonuses are paid as a percentage of Total Wages earned, there

is no need to recalculate past OT payments.

• If the Company announced the bonus for completing the project

would equal 4.5% of Total Pay for the 4-week project in first example, the result would be an $85.50 bonus.

$1,900 x .045% = $85.50

• This works because you are increasing the regular pay ($1,600)

and the OT pay ($300) by the same proportion.

Pitfalls of Percentage Method

• You still need to apply it against Total Pay during a defined period
• f time
• Run risk paying too much

Unexpected contingencies make the project take much longer so OT increases

and Total Pay inflates

Scheming employees try to pad OT by working more slowly

– Of course, that incentive always exists

Other Issues

• Donning and Doffing
• Meal and Rest Breaks

Payment for time worked and worked time is included in regular rate analysis Premium or penalty is NOT included

• Employee Expense Reimbursement

Contact Information

Michael W. Kelly michael.kelly@squiresanders.com +1 415 954 0375 Nisha S. Patel nisha.patel@squiresanders.com +1 650 843 3342