Two employers learned a lesson in understanding the rules of the Fair Labor Standards Act. The FLSA requires that non-exempt employees receive overtime pay based on their “regular of pay”. Unfortunately, many employers don’t understand that term. Regular rate of pay is not the hourly figure that the employee was hired at, it is, as stated in Fact Sheet #23, ” The regular rate includes all remuneration for employment except certain payments excluded by the Act itself.” This means that discretionary items do not have to be included, but things like shift differentials, which are not discretionary must be included. Bonuses based upon productivity and attendance also have to be included. These items added up and then divided by the hours work determine the actual hourly rate upon which overtime has to be calculated.
According to one press release from the U.S. DOL a lighting manufacturer “…failed to include employees’ shift differentials when computing their overtime pay, instead basing their time-and-one-half calculation only on the workers’ hourly base rates” and as a result will pay $138,753 in back wages and liquidated damages to 829 employees. In a second press release, the USDOL announced “…a continuing care retirement community based in Ligonier, Pennsylvania paid $39,704 in back wages and liquidated damages to 92 employees” for failing to include shift differentials in calculations of overtime.
In addition to these monetary penalties, both organizations also had to revise their recordkeeping, and will also be subject to increased scrutiny from the Department of Labor.
Mistakes have their consequences and employers need to make sure they understand the rules.