Holiday Pay and Overtime

It’s a regular issue which comes up during a holiday week. Employees feel if they work three ten hour days (30 hours total) and get two days off (8 hours per day) they would be entitled to 24 hours of overtime pay. Think again, this is not the case. Overtime hours are only computed based on the hours “actually worked.” You have to physically work the hours in order to receive overtime pay. In other words, if you physically worked 40.5 hours Monday through Wednesday, you would be entitled to .50 hours of overtime, and 56 hours of regular pay (this includes 16 hours for Thursday and Friday).

Another factor which comes into play would be if the employee works during the same pay period and if it would count as overtime. Lets say the company’s pay period was Monday through Sunday. For a lone example, lets say an employee worked 24 hours total Monday through Wednesday, received 16 hours of holiday pay and worked 16 hours total Saturday and Sunday. This would mean the employee would receive 56 hours of straight time pay and no overtime pay. 

Some other factors which come into play and also cost an employer more money is if they offer time and a half to work during the holiday or if they pay a premium on top of the hourly base for those working on the holiday. If the employee is receiving two different hourly rates, it most certainly affects the employees overtime calculation. Bill Shaefer submitted a great article to SHRM back in 2008 regarding this type of scenario (however it was for two different jobs), but I like to think this is still a good comparison. Here is a link to the article as I think he provides a great scenario based calculation for weighted average computation.

Let’s provide an example for an employee who receives premium pay on top of their hourly rate if they work the holiday. Let’s say Sally Employee makes $10.00 an hour and is offered to work the Thanksgiving and Black Friday shifts (two-ten hour days) and receive a 20% premium on top of her hourly rate. 

How to calculate her overtime rate:

Monday-Wednesday: $10/hour * 24=$240.00

Thursday-Friday: $10/hour*.20 shift premiums=$12.00/hour*20 hours=$240.00

$240+$240=$480.00/44 hours= $10.91 straight time hourly rate

$10.91*1.5=$16.37 per hour for overtime.

$16.37*4 hours of overtime=$65.48 total compensation for overtime.

Total Wages= $480+ $65.48=$545.48

Just remember, it is not mandatory to pay a shift premium for working weekends and holidays. You just have to pay time and one-half for every hour of overtime worked by the employee. Of course, most companies do something like a bonus, shift premium or time-and-one-half to provide an incentive to employees who want to work the less sought out shifts. 

Let’s look at the other two examples of which an employer can pay an employee to work a shift:

1) I’m going to pay you a nondiscretionary bonus of $500.00 to work Thursday and Friday (20 hours total between the two days). Because you’re going to work this shift, the bonus will be included in your overtime calculation.

Sally Employees hourly rate is $10.00 per hour.

Sally worked 24 hours Monday-Wednesday and 20 hours Thursday-Friday which equals 44 total hours.

Straight time Computation: $10/hour*44 hours=$440.00

Add in the Bonus: $500+$440.00=$940.00

Find the Straight time hourly rate: $940/44 hours=$21.36

Find the overtime hourly rate: $21.36*1.5=$32.04 per hour

Find the overtime compensation: $32.04/hour*4 hours=$128.16 

Total Compensation=$940+$128.16=$1068.16.

2) I’m going to pay you time and one half for the hours you work on Thursday and Friday (20 hours total).

Sally Employees hourly rate is still $10.00 per hour.

Sally worked 24 hours Monday-Wednesday and 20 hours Thursday-Friday which equals 44 total hours.

Straight time computation: $10/hour*24= $240  Plus $15/hour*20=$300 

Total Straight time compensation: $540.00

Straight time hourly rate: $540/44 hours=$12.27/hour

Overtime hourly rate: $12.27/hour*1.5=$18.41/hour

Overtime compensation: $18.41*4 hours of overtime= $73.64

Total Compensation: $540+$73.64=$613.64

So after looking at the three different types of scenarios, it is safe to say Sally Employee benefits the most when a bonus is given to her. She also fares better when the employer says they will pay her time and one half for working Thursday and Friday (common sense tells you 50% on top of the hourly rate for overtime is higher than the 20% offered in the very first scenario). Best of luck to everyone when scheduling your employees for this holiday season.


The Various kinds of Employment Tests

employment test

At one point in time or another, we’ve all had to partake in some form of test in order to get a job. Drug tests, background checks, word tests or even putting parts together are all of the different types of tests which can be given. The truth is, there is no law forbidding any of these tests as long as certain criteria are met.

Drug Tests: These are probably the most common amongst companies today because more and more employers are trying to reduce on the job accidents or even worker’s compensation cases. The Public Policy Institute of New York State Incorporated posted statistics by state back in 2002-2003 and found Louisiana to have an average workers compensation case cost of $14,189. I would say looking at a figure this large for just one case can be compelling enough for employers to want to drug test as a condition of employment. Please keep in mind, a drug test should only be performed after a verbal offer has been extended and accepted by the employee. The written offer letter should be put together and the employee should get it (keep in mind a disclosure should be put at the bottom saying employment is contingent upon successful completion of both a background and drug test). Even though the figure above was from 12-13 years ago, I’m sure it’s just as high due to inflation. Here is a link to the figures by state:

Keep in mind drug tests must be administered among everyone and not just a certain group. It has to be a requirement everyone has to follow. I would also recommend drug tests after each worker’s compensation case to rule out intoxication from drugs or alcohol since the employer bears so much risk with injuries and accidents. Be certain to put this in your policy manual and ensure all applicants have read and signed off on it.

Background Checks: A background check may not be initiated without having the employee sign off their authority to have one performed on them. This is generally achieved by having the employee sign off a Fair Credit Report Act disclosure and have a summary of their rights under the act. Background Checks cannot be performed until after a verbal offer has been accepted. Again, the applicant must be advised how employment is contingent on successful completion of a background check. If any adverse results come up on the background check, the employee generally has 3 business days to contest these results and get back with the employer with information. Here is a link to the Fair Credit Reporting Act:

Employment Tests: These are generally the least common as not many employers can prove these tests can prove successful performance on the job. Lifting tests, question and answer tests, putting parts together or even performing the job are the different types of tests. Firefighters are required to lift a certain amount of weight above their head in order to be considered for employment. This particular test can exclude many females and could possibly looked at as adversely impacting them; however, lifting dead weight over your head is required as a bona-fide occupational qualification (which basically means it is essential for the job). I’ve taken many different types of question and answer tests and really don’t see a connection between the test and the job. I’ve been particularly perplexed when I’m asked questions like, “If you were a cash register worker and had more cash than you were supposed to, would you pocket the rest?” I would honestly have to be out of my mind to answer “yes” because I don’t steal.

I do laugh at some of the questions like, “I feel entitled to office supplies because I work hard.” These tests are actually behavioral/situational and can predict past behavior. I can see this being very important for cash handling jobs, but the interview should be a time to ask these types of questions. The one case which sticks out in my mind is the Griggs V. Duke Power; this case consisted of a power company with only 12 African Americans. The company had a policy where African American men were only allowed to work in the labor department (which was also the lowest paid job) and after the passage of Title VI of 1964, the employer required either a high school diploma or certain scores on their IQ tests to move into a high paying job. This test did not prove to be a predictor of successful job performance as white males promoted into higher positions without high school diplomas performed at a satisfactory level. So be certain if you wish to start testing your employees and applicants, you do so in a manner which does not have discriminatory intent. Doing so can have severe implications unless you can prove a bona-fide occupational qualification and how successful completion of the test predicts successful job performance. Here is a link to the case:


Discretionary and Nondiscretionary Bonuses

Employers are usually on the lookout for superior performance or behavior which is in line with the organizations instilled values, mission and vision. There are some which decide to reward employees by giving a bonus on either a discretionary basis or a nondiscretionary basis. It is great to work for an employer who values employees for their superior behavior or performance. The employee gets the benefit and it is determined by the form of bonus which is received. 

Discretionary bonuses are the types of bonuses which are not tied to a certain level of production. Examples of discretionary bonuses include spot bonuses or a bonus for being a good employee. Discretionary bonuses do not occur on a level of frequency or have a level of production which needs to be achieved to get a bonus. If your boss looks at you and says, “I want to give you a bonus for doing a wonderful job this week.” This type of bonus will be added to the check but not included in the employees wages for purposes of overtime.

Nondiscretionary bonuses are the bonuses which occur for a certain level of production or performance. Say for example, the employer says the employee will get a $200 bonus for achieving 200 units of sales each week. This $200 bonus will be included in the employees wages to determine overtime. So if the employee worked 50 hours and is paid $10.00 an hour, the following should take place: 

The correct way of calculating bonus plus overtime:

Straight time: 50 hours times $10.00= $500.00

Bonus: $200 for this week plus straight time hours=$700.00

Overtime Rate: $700/50= $14.00 times 1/2= $7.00. $21 an hour for each hour of overtime.

Overtime compensation: 10 hours times times $21.00= $210.00

Total Compensation for a week: $910.00

The illegal way of calculating the bonus:

Straight time: 50 hours times $10.00= $500.00

Overtime Rate: $10.00 times 1/2= $5.00 plus $10.00= $15.00 per hour of overtime.

Overtime compensation: $15.00 per hour times 10 hour= $150.00

Bonus= $200

Total compensation: $850.00

As you can see in the example above, it is very important to include your nondiscretionary bonuses in overtime compensation calculation. If you calculate it wrong, you would have shorted the employee $60.00 of compensation. This type of violation is worthy of a call to the Department of Labor. I’m sure the IRS would be happy to hear about this as well because they would have needed to take more tax on the $60.00 of missed wages. Employers have to be very careful about the type of bonus they will assign to their employees since it has grave implications on the employees pay.

If the same employee was going to receive a $200 bonus one week because the manager was pleased with employees customer service, this would be considered a discretionary bonus because there was no set level of production or threshold. Discretionary bonuses are not a, “this-for-that” type of situation since the employee does not have to do something to get the bonus. Just being a good employee is a good enough excuse for some employers to give a bonus. But we all know not all employers have the financial means to do so. Christmas bonuses are a good example unless they occur every single year. If you tie it to the financial environment (for example, the company can only give a bonus if the company has the financial means to do so), this would be considered a discretionary bonus. 

Please keep in mind, exempt level employees do not get overtime; therefore there is no overtime calculation. If the employee gets $1500 every two weeks and gets a $200 bonus, the employee will be compensated $1700 (before taxes of course).