Recent Court Decision Regarding Calculating Overtime Pay

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April 6, 2006

The Fair Labor Standards Act (FLSA) requires employers to pay overtime pay to non-exempt employees who work more than a specified number of hours during the work week. The FLSA does not limit the number of hours that an employee may work, either daily or weekly. It simply requires that overtime pay must be paid at a rate of not less than one and one-half times the employee s regular rate of pay for each hour worked over the maximum hours standard in a work week. For most non-exempt hourly employees, the maximum hours standard is 40 work hours in a seven day work week. This means that employers must pay time and one-half for any hours that a non-exempt employee works in excess of 40 hours per work week.
 
An employee’s “regular rate of pay” is used for determining the one and one-half hour payment for overtime pay purposes. The regular rate of pay is usually the employee’s hourly rate of pay; however, as shown below, it must take into consideration certain other payments made to the employee by the employer.
 
In Bell v. Iowa Turkey Growers Cooperative, 407 F. Supp.2d 1051 (1/3/2006), the U.S. District Court for Southern Iowa found that a meat processing company owed numerous employees additional overtime pay because it failed to take into account certain premium pay – known as “shift differentials” – when it determined the employees’ regular rate of pay that was used to calculate overtime pay. The shift differentials were an additional amount that employees were paid for working less favorable work shifts. The ruling also addressed a rare situation. The Court ruled that, unlike shift differentials, other premiums the employer paid to employees who worked on a 6th day of the work week (usually Saturday) did not have to be included in the regular rate when calculating overtime pay. The Court also allowed the employer to apply the 6th day premium pay as credit against the amount it owed as overtime pay for failing to include the shift differentials in the calculation of the regular rate of pay.
The following are examples of compensation the Department of Labor believes should generally be included in the regular rate of pay for purposes of determining overtime pay:

On-call pay.
Non-discretionary bonuses promised for accuracy of work, good attendance, continuation of the employment relationship, incentive, production or quality of work;
Salary increases, including retroactive increases;
Sick leave (employee unused accrued sick leave bought by an employer); and
Non-discretionary longevity pay.

Certain exemptions apply to certain categories of employees and, especially so, with regard to public employees in protective services employment (e.g., law enforcement, firefighters) versus private sector employees.
If you have questions regarding the above, please contact any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.

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