On July 24, 2008, the federal minimum wage increased by 70 cents from $5.85 per hour to $6.55 per hour. Like the minimum wage in several other states, the Utah minimum wage also increased to $6.55 per hour.
How does your employer calculate overtime pay? You may not know, but maybe you should.
The national retail giant Wal-Mart learned a lesson in overtime pay the hard way recently. It learned that overtime must be calculated on “average hourly compensation,” not “base rate.” The lesson has cost it $33 million.
Wal-Mart has agreed to pay that $33 million in back wages to more than 86,680 of its employees nationwide.
“This settlement provides $33 million in back wages, plus interest, to Wal-Mart Workers,” said Victoria A. Lipnic, Assistant Secretary of Labor for Employment Standards. She said the company has taken action “to prevent this from happening again.” The agreement covers the period between February 1, 2002, and January 19, 2007.
Under the consent decree Wal-Mart is paying all of the back wages for the violations, as well as interest on the total.
Under the FLSA, employees must be paid at what is popularly called “time-and-a-half,” or 1.5 time their usual rate, for any time over 40 hours a week. At issue was not whether Wal-Mart paid overtime. It did. The question revolved around what the retailer used to calculate that overtime. Employees’ pay, before incentives and premiums, is called the “base rate.” With premiums and incentives it is called the “average hourly compensation.”
For example, an employee’s “base rate” may be $6 an hour, while his or her “average hourly compensation,” with those incentives and premiums, may be $7 an hour. The law says overtime must be calculated by using the “average hourly compensation,” or, in this example, $7 an hour. Wal-Mart was using the “base rate,” which in this example would have been $6 an hour.
The Fair Labor Standard Act is one of the most important federal laws that employers can know. You know the details of the Fair Labor Standards Act, and you will know a lot of what you need to know about overtime laws on the federal level, about how to pay your employees for their work, and how to employer minors and other groups. It is a reason why there is a federal minimum wage labor law poster required for nearly every employer in every state. Much of the information on this poster comes directly from this Fair Labor Standards Act.
And why should you pay attention to this law and not cut corners? Just take the example of T.J. Enterprises and Acoustical Inc., a company out of Salt Lake City, Utah. This company was recently caught violated overtime requirements in the Fair Labor Standards Act, and thus was fined as much as $39,270 in civil penalties for these violations by the Wage and Hour Division of the U.S. Department of Labor. The stiff penalties come because the Wage and Hour Division of the U.S. Department of Labor claims that the violations on the part of the Utah company were flagrant and frequent.
First, the federal government found that the company had violated overtime pay requirements for 84 of its employees. The company owed these folks as much as $27,000 in back pay, in large part because the company paid out its overtime to its employees on a separate check as a “bonus.” The company got caught doing the same thing in 2002, and back then agreed to follow normal federal procedure.
This catch is just one of 31,987 compliance related actions that the Wage and Hour Division of the U.S. Department of Labor has carried out in the past year, if that gives you any idea of how serious the federal government is about enforcing the Fair Labor Standards Act.