Contractors Often Pay Overtime Incorrectly
Many HVAC companies under pay overtime which creates an ever-increasing financial burden that will catch up to many companies.
We all know that we must pay regular time plus 50% when employees work more than forty hours in a work week. Some states require overtime after 8 hours in one twenty-four-hour period.
What many companies get wrong is not considering all the employees’ compensation when calculating their “regular time”.
How to Calculate the Employees’ Basis
Add up all compensation* for the payroll period and divide that amount by forty. That is the basis of your regular rate used to calculate the employees’ overtime rate.
*As a general rule, any bonus given to employees as a means of motivating job performance, productivity, quality or accuracy must be included in the regular rate of pay. Holiday/gift bonus, discretionary bonus, and percentage of total earnings bonus are exempt at a federal level. A state can apply tougher rules but not easier (softer) rules.
John makes $25.00 per hour (straight or regular time) and works eight hours per day, Monday through Friday. He is paid on a weekly basis. For purposes of this example, the time frame of consideration for a bonus will be defined as a workweek.
One week, John worked 40 hours and received a Perfect Punctuality Award of $100 for the workweek.
No action needs to be taken. John did not work over 40 hours during the workweek, so no overtime pay is due, and the regular rate does not need to be recalculated.
Brian makes $28.00 per hour and works eight hours per day, Monday through Friday. He is paid weekly. He received a production bonus of $200.00 and worked a total of 46 hours during the last workweek.
HR determines the bonus should be included when calculating overtime because it was paid to motivate Brian to produce, and it was within a defined work week.
$1,120.00 ($28.00 x 40 hours)
Overtime Basis Calculation
($28.00 x 46 hours) + $200.00 = $1,488.00
$1,488.00 / 46 = $32.35
$28.00 x 40 hours = $1,120.00
$32.35 x 6 hours = $194.09