Chapter 2 Payroll Notes/Vocab

Two Bases of Coverage Under FLSA

 Enterprise coverage includes all employees
o If two or more employees are working in interstate commerce or produce goods
o Business has at least $500,000 of annual gross sales
 Individual employee coverage
o Includes employment in a fringe occupation related to production of goods for interstate
commerce (I.C.)
o If business does not meet enterprise coverage requirements, the business must pay FSLA wages
to those workers that are eligible for individual coverage
 Statutory nonemployees are direct sellers and licensed real estate agents. Since they are considered self-
employed, they are not treated as employees for federal tax purposes
Domestic & FSLA (Fair Labor Standards Act
 Domestic workers are jobs like nannies, gardeners, chauffeurs, babysitters etc
o Employees must earn minimum wage if they work more than 8 hrs a week and earn at least
$2,200 in a calendar year
o Live in domestics aren’t paid overtime. If employed by a third-party employee, overtime rules
may be different
Exemptions
 “Exempt” means exempt from some, or all, of FLSA provisions
 White-collar workers as outlined in Figure 2.2 on next slide are exempt
o Executives, administrators, professionals, business owners, highly compensated
employees, computer professionals, creative professionals, outside salespeople
 Must be paid at least $684/week and paid on salary basis
 Executive
o Primary duty – managing
o Supervises two or more employees
o Authority to hire, fire, promote
 Administrative
o Primary duty-performs office work
o Regularly uses discretion and independent judgment
 Professional
o Work requires advanced knowledge (science or learning)
o Knowledge acquired by prolonged course of instruction
 Business Owner
o Owns at least 20 percent of equity
o Actively manages business operation
 Highly Compensated
o Earns $107,432 or more
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 o Performs nonmanual work
o Regularly performs one of the exempt duties of an executive, professional, or administrative
employee
 Computer Professionals
o Salary of at least $684/week or $27.63/hour
o Duties consist of system analysis techniques, design of computer systems or programs
 Creative Professional
o Requires invention, imagination, originality, or talent in an artistic or a creative endeavor
 Outside Salespeople
o Primary duty—makes sales or obtains orders for services or use of facilities
o Regularly away from the employer’s place of business
o No salary test

 Equal Pay Act: amended FSLA to require that men and women performing equal work must receive
equal pay
o Prohibits discrimination by paying wages to employees of one sex at a lower rate than those of
opposite sex. May differ due to seniority system, merit system, or payment plan based on
performance not sex
What FSLA Does Not Cover
 Employers are not required to
o Pay extra for weekend/holiday work
o Pay for holidays, vacation, or severance
o Limit number of hours of work for persons 16 yr or over
o Give holidays off
o Grant vacation time
o Grant sick leave

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 FACTS: Salary quoted to Faron, a nonexempt employee, is $1,500/month. He’s paid weekly and has 43 hours in
one pay period. Calculate his gross pay.
• $1,500 x 12 = $18,000 annual
• $18,000/52 = $346.15 weekly gross
• $346.15/40 = $8.65 regular rate
• $8.65 x 1.5 = $12.98 OT rate
• $346.15 + ($12.98 x 3) = $385.09 gross

FACTS: Salary quoted to Eve, a nonexempt employee, is $2,000/month. She’s paid semimonthly and worked 4
hours of OT in one pay period.
• $2,000 x 12 = $24,000 annual
• $24,000/24 = $1,000 semimonthly gross
• $24,000/52 = $461.54 weekly rate
• $461.54/40 = $11.54 regular hourly rate
• $11.54 x 1.5 = $17.31 OT rate
• $1,000 + ($17.31 x 4) = $1,069.24 gross

FACTS: Salary quoted Xi, a nonexempt employee, is $2,200/month. She’s paid biweekly and worked 11.5
hours OT in one pay period.
• $2,200 x 12 = $26,400 annual
• $26,400/26 = $1,015.38 each biweekly pay period
• $26,400/52 = $507.69 weekly rate
• $507.69/40 = $12.69 regular hourly rate
• $12.69 x 1.5 = $19.04 OT rate
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 • $1,015.38 + ($19.04 x 11.5) = $1,234.34 gross
 Employee and employer may forge an agreement that a fluctuating schedule on a fixed salary is
acceptable
o Overtime is calculated by dividing normal salary by total hours worked
o Then an extra 0.5 overtime premium is paid for all hours worked over 40
or
o Can divide fixed salary by 40 hours – gives different pay rate each week
o Then an extra 0.5 overtime premium is paid for all hours worked over 40

 Alternative – BELO Plan

o Appropriate for very irregular work schedule
o Deductions cannot be made for non-disciplinary absences
o Guaranteed compensation cannot be for more than 60 hours
o Calculate salary as wage rate multiplied by maximum number of hours and then add 50% for
overtime
o Agreement must exist between employee and employer

Facts: 4,812 units inspected in a 47.25 hours week (600 of those units produced in extra hours). Mustafa is paid
$0.12 per unit. Calculate gross pay using both piece rate methods.
• Method A
• 4,812 x $0.12 = $577.44 regular earnings
• $577.44/47.25 hours = $12.22 hourly rate
• $12.22 x 0.5 = $6.11 OT premium
• $577.44 + ($6.11 x 7.25 hrs.) = $621.74 gross pay
• Method B
• (4,212 x $0.12) + [600 x ($0.12)(1.5)] = $613.44 gross pay

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 Chapter 2 Adaptive Plan
1. Which of the following statements are true as pertain to calculating overtime pay
for a nonexempt employee?
a. Nondiscretionary bonuses must be included in determining regular rate of
pay

2. When converting a semimonthly salary rate to an hourly rate, the payroll processor
can most easily:
a. Use the table of decimal equivalents

3. Bob Brooks works a 37.5 hour week and his salary is $806.25. He and his
employer agreed his salary covers all hours worked up to 40. This week, Brooks
worked 43 hours. Brooks' gross pay for the week is:
a. $903.00
b. $806.25/37.5 hours = $21.50/hour
c. $21.50 * 1.5 = $32.25
d. OT rate, $32.25 * 3 hours =$96.75
e. OT pay, $96.75 + $806.25 = $903.00. Note that as long as the agreement
exists, the employer does not have to pay for the 'overtime hours' up to the 40
hours.

4. The FSLA requires that:

a. Employers keep certain time and pay records

5. Athena Yakis, a full-time student at BYU, works at the retailer, Big Box Inc. This
week she worked 25 hours – what amount must Athena gross for her employer to
be in compliance with the FLSA?
a. $154.25
b. Full-time students in a retail establishment may be paid 85% of minimum
wage.
c. ($7.25 x 85%) = $6.17*/hour x 25 hours = $154.25. (*Note: government
rounds to $6.17 in favor of student-employee).

6. Principal activities:
a. Are those activities considered indispensable to performance of productive
work

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 7. Profit-sharing plans may be developed to share with employees a portion of the
profits of the business. Which one of the following is not a traditional type of
profit-sharing plan?
a. Distribution of illiquid assets of the company

8. If an unlawful pay differential between men and women exists, the employer must:
a. Raise the lower rate to equal the higher rate

9. One of the primary drivers behind the need for “next generation” (ie- digital)
timekeeping and attendance systems is:
a. The number of employees that work outside the traditional 9-5 office
environment

10. When an employee is in a profession that is customarily tipped:

a. The employer may take a $5.12 credit towards the minimum wage under
federal law

11. If an employee’s normal workweek is less than 40 hours:

a. He/she can forge an agreement whereby employer does not have to pay for
the “overtime hours” up to 40 hours

12. Due to a special order, Jared worked 56 hours this week. Jared’s regular rate
of pay is $17.00 per hour. Jared’s gross pay for the week is:
a. $1,088.00
b. 40 * $17.00 = $680.00 regular pay
c. $17.00 * 1.5 = $25.50 OT hourly rate
d. $25.50 * 16 hours of OT =$408.00 OT pay;
e. $680.00+$408.00 = $1,088.00

13. Which of the following examples would be considered compensable time

according to the FSLA?
a. A product rep’s travel between different retail outlets to set up product
displays

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 14. Dolores Woods earns $580.00 for a 40 hour workweek. Woods worked 48
hours this week. Her gross pay for the week is:
a. $754
b. $580.00/40 hours = $14.50 per hour
c. $14.50 * 1.5 = $21.75 overtime rate
d. $21.75 * 8 hours OT = $174.00, $580.00+ $174.00 = $754.00.

15. When an employee is paid different rates for different jobs:

a. Overtime may be calculated using one of three methodologies

16. A piece rate system is:

a. Must equal at least a statutory minimum wage rate

17. Inez is compensated based on a plan that pays a base salary, with
commission in addition. Inez receives $40,000/year salary (and is paid monthly);
additionally, she receives 8% on all sales in excess of $50,000 in sales/month. In
April, Inez sold $69,500 of product. Calculate her monthly earnings.
a. $4,893.33
b. $40,000/12 months = $3,333.33 regular monthly salary.
c. Commission is calculated as ($69,500 - $50,000) * 8% = $1,560.00.
d. $3,333.33 + $1,560.00 = $4,893.33.

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