Determining Compensation Under the Fair Labor Standards Act (FLSA)

worker.jpgThe Fair Labor Standards Act (FLSA) requires employers to pay employees overtime pay, at a rate of time and a half, for all hours worked in excess of 40 hours per week. See Section 207 of the Act.

To calculate the amount of compensation an employee is owed under the FLSA, the overtime rate (OT rate) must be determined.

The first step in this equation is establishing the “regular rate of pay,” the hourly rate. If the employee has not received employer-furnished fringe benefits, such as health insurance and housing, the “regular rate of pay” is the hourly rate, and the OT rate is 1/2 of the hourly rate. For example, if the “regular rate of pay” is $10.00/hour, the overtime rate is $5.00.

Where fringe benefits have been provided, their value must be included in the calculation. In the case of health insurance, the fringe benefit value determination is relatively simple to make, with the employer’s share of the premium payment being the actual “value” of the fringe benefit. Where the employer is not making an easily identifiable payment, such as in the case of self-administered medical programs provided by some big emloyers, or where housing is provided by the employer, determining the value of the benefit is not as simple. Not infrequently, the parties will fight over the value of fringe benefits. (Caveat: the employer may try to argue that the fringe-benefit is a form of payment for overtime wages, rather than a benefit which increases the “regular rate of pay.” Paycheck stubs and tax records, among other evidence, must be considered to resolve this dispute.)

Where fringe benefits are part of the calculation, determining the OT Rate is a 3-step process:

Step 1 – Regular Weekly Pay: Hourly rate of pay times (x) hours worked per week plus (+) value of fringe benefit(s). (Example: $10/hr x 62 hours + $50 (weekly insurance premium.))

Step 2 – Regular Rate of Pay: Regular Pay divided (/) by hours per week.

Step 3 – OT Rate: Equals 1/2 of Regular Rate of Pay.

Compensation due under the FLSA is determined by multiplying the OT Rate by the employee’s number of accrued overtime hours. The FLSA statute of limitation is 2 or 3 years depending on whether the employer’s failure to pay overtime wages was by purposeful design or through simple oversight or ignorance.

The FLSA also contains a liquidated damages provision for double damages.

Hypothetical Case: Employee worked an average of 62 hours a week during the 3-year period immediately preceding his case being filed in court, with an hourly rate of pay of $10.00. The employer also paid the equivalent of $50 per week for health insurance.

  • OT Hours: 3432 (156 weeks (3 years) x 22 (OT hours/wk))
  • Regular Weekly Pay: $670 (Hourly pay x total hours + fringe benefit)
  • Regular Rate of Pay: $10.80 (Regular Weekly Pay divided by hours per week)
  • OT Rate: $5.40 (1/2 of Regular Rate of Pay)
  • OT Owed: $18,532.80 (OT Rate x OT Hours)
  • Liquidated Damages: $18,532.80
  • Total Owed: $37,065.60

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