Payroll Accounting 2013Bernard J.Biegand Judith A.Toland
CHAPTER 2COMPUTING WAGES & SALARIES
Developed by Lisa Swallow, CPA CMA MS
Explain the major provisions of the Fair Labor Standards ActDefinehours workedDescribe the main types of records used to collect payroll dataCalculate regular and overtime payIdentify distinctive compensation plans
What is Minimum Wage?
Includes all rates of pay including, but not limited toCommissionsNondiscretionary bonuses and severance payOn-call or differential payDiscretionary bonus (one which is not agreed upon or promised before hand) is not included in an employee’s regular rate of payOther types of compensation not included in regular rate of pay includeGifts made as a reward for servicePayments for a bona fide profit-sharing planVacation, holiday, sick day or jury duty payVehicle, tool or uniform allowances
“Tipped employee” regularly average more than $30/month in tipsMinimum tipped wages is $2.13/hour,therefore tip credit = $5.12/hour – but may be calculated differently based upon state lawEmployee must make $7.25/hour when combining tips/wages ($7.25 x 40 = $290 minimum weekly gross)Tip credit remains the same for overtime pay calculation purposesExamples of tips received for 40-hour workweek#1. Reported tips = $43Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290 - (No - so employer must pay additional wages of $290 - $43 = $247)#2. Reported tips = $1,189Is $85.20 + $1,189 > $290 - (Yes – so employer pays $85.20 wages)Note: states’ tip credit percentages may differ from federal law
*40 hours x $2.13/hour = $85.20
Overtime Provisions & Exceptions
Workweek established by corporate policyMust be seven consecutive 24-hour periodsFor example 12:01 a.m. Saturday - 11:59 p.m. FridaySome states require daily overtime (OT) over 8 hours (if state plan is more generous than FLSA, state law is followed)FLSA sets OT pay at 1.5 times regular payEmployer can require employees to work overtimeExceptions to the above are as followsHospital employee, overtime for 80+ hours in 14 days or over 8 hours in a day (whichever is greatest)Retail or service industry employees earning commission (special rules)Employee receiving remedial education
Exempt vs. Nonexempt Employees
“Exempt” means exempt from some, or all, of FLSA provisionsWhite-collar workers as outlined in Figure 2-2 (p. 2-10) are exemptExecutives, administrators, professionalsBusiness owners, highly compensated employeesComputer professionals and creative professionalsOutside salespeopleTest of exemption means employee must meet ‘primary duty’ requirements listed in Figure 2-2Employee must be paid on salary basis at least $455/weekBlue collar workers arealwaysentitledto overtime pay – includes police officers, EMTs, firefighters, paramedics and LPNsNote: Putting someone on salary doesn’t mean he/she is exempt!!
Determining Employee’s Work Time
Principal activities require exertion, and are required by the employer and for the employer’s benefitPrep at work station is principal activity and in some situations changing in/out of protective gear may be part of workdayTravel (when part of principal workday) is compensableIdle time and wait time (waiting to provide employer’s service)Rest periods under 20 minutes are principal activities (can’t make employee “check out”)Meal periods are not compensable time unless employee must perform some tasks while eating – generally 30 minutes or longerWork at home is principal activity for nonexempt employeesSleep time is principal activity if required to be on duty < 24 hoursTraining sessions (with certain caveats)Waiting for doctor’s appointment on site
Records Used for Timekeeping
FLSA requires certain time and pay records be keptTime sheets indicate arrival/departure time of employeeComputerized time/attendance recording systemsCard-generated systems use computerized time cardsBadge systems employ badges in conjunction with electronic time clocksCardlessandbadgelesssytemsrequire that an employee use their PIN number to process timekeepingPC-based system allows employee to clock in via computerNext generation technology includes touch-screen kiosks, web-based, biometrics and IVR (interactive voice response)
Most common pay periods are as followsBiweekly (26) - 80 hours each pay periodSemi-monthly (24) - different hours each pay periodMonthly (12)- different hours each pay periodWeekly (52) - 40 hours each pay periodEmployer may have different pay periods fordifferent groups within same company!
Calculating Overtime Pay
There are two methodsMost common methodCalculate gross pay (40 hours x employee’s regular rate)OT rate then calculated by multiplying 1.5 x employee’s regular rate x hours in excess of 40Other methodCalculate gross pay (all hours worked x employee’s regular rate)Then calculate an overtime premium (hours in excess of 40 x overtime premium rate*)Hourly rate x ½ = *overtime premium rateThese methods result in same total gross pay!
Salaried Nonexempt Employees -Fluctuating Workweek
Employee and employer may forge an agreement that a fluctuating schedule on a fixed salary is acceptableOvertime is calculated by dividing normal salary by total hours workedThen an extra .5 overtime premium is paid for all hours worked over 40orCan divide fixed salary by 40 hours – gives different pay rate each weekThen an extra .5 overtime premium is paid for all hours worked over 40Alternative – BELO PlanAppropriate for very irregular work scheduleDeductions cannot be made for non-disciplinary absencesGuaranteed compensation cannot be for more than 60 hoursCalculate salary as wage rate multiplied by maximum number of hours and then add 50% for overtime
FLSA requires piecework earners to get paid for nonproductive timeMust equal minimum wage with OT calculated one of two waysMethod AUnits produced x unit piece rate = regular earningsRegular earnings/total hours = hourly rateHourly rate x 1/2 = OT premiumRegular earnings + (OT premiumx OThours) = gross payorMethod B(Units produced in 40 hours x piece rate) +[(Units produced in OT) x (1.5 x piece rate)]Note: two methods don’t give same results!!
Special Incentive Plans
Special incentive plans are modifications of piece-rate plansUsed to entice workers to produce moreComputation of payroll is based on differing rates for differing quantities of productionExample of incentive plan.18/unit for units inspected up to 2,000 units/week.24/unit for units inspected between 2,001-3,500 units/week.36/unit for units inspected over 3,500 units/week