Questions and Answers About the Fair Labor Standards Act FLSA U S. Department of Labor

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(c) The rate specified in the contract must also be a “regular” rate which is operative in determining the total amount of the employee’s compensation. Suppose, for example, that the compensation of an employee is normally made up in part by regular bonuses, commissions, or the like. In the past he has been employed at an hourly rate of $5 per hour in addition to which he has received a cost-of-living bonus of $7 a week and a 2-percent commission on sales which averaged $70 per week. It is now proposed to employ him under a guaranteed pay contract which specifies a rate of $5 per hour and guarantees $200 per week, but he will continue to receive his cost-of-living bonus and commissions in addition to the guaranteed pay.

  1. (b) An hourly rate will be regarded as a bona fide rate for a particular kind of work it is equal to or greater than the applicable minimum rate therefor and if it is the rate actually paid for such work when performed during nonovertime hours.
  2. Thus, employers should review their payment processes on the front end to ensure compliance before any small errors or omissions (quite literally) multiply out of control.
  3. Bonuses and commissions of this type are, of course, included in the “regular rate” as defined in section 7(e).
  4. (m) Acquisition employees with authority to bind the organization to significant purchases generally meet the duties requirements for the administrative exemption even if they must consult with higher management officials when making a commitment.
  5. Workweek – A workweek is a period of 168 hours during 7 consecutive 24-hour periods.

In such case, the extra compensation provided by the premium rates need not be included in the employee’s regular rate of pay for the purpose of computing overtime compensation due under section 7(a) of the Act. Moreover, under section 7(h) this extra compensation may be credited toward the overtime payments required by the Act. The first workday in the period, for purposes of this computation, begins at the same time as the 14-day period and ends 24 hours later. Each of the 13 consecutive 24-hour periods following constitutes an additional workday of the 14-day period. Overtime compensation at the prescribed time and one-half rate is also required for all hours worked in excess of 80 in the 14-day period, whether or not any daily overtime is worked during the first 80 hours. However, under the provisions of section 7(h) and 7(e)(5) of the Act, any payments at the premium rate for daily overtime hours within such period may be credited toward the overtime compensation due for overtime hours in excess of 80.

The only sums which can be excluded as overtime premiums from this total before the regular rate is determined are the extra $2.50 payments for the extra hour on Thursday and Friday made because of work actually in excess of 8 hours. The payment of the other premium rates under the contract is either without regard to whether or not the hours they compensated were in excess of a bona fide daily or weekly standard or without regard to the number of overtime hours worked. The remaining $300 is divided by 48 hours to determine the regular rate—$6.25 per hour. One-half this rate is due under the Act as extra compensation for each of the 8 overtime hours—$25.

For example, how much authority does the employee have regarding daily business operations and running the company? Is the employee expected to concept, create, and execute operations policies? These may all pertain to the employee having a certain level https://adprun.net/ of autonomy to make decisions on behalf of the company. This content provides practical information concerning the subject matter covered and is provided with the understanding that ADP is not rendering legal advice or other professional services.

In addition, a number of states have enacted minimum wage and overtime pay laws, some of which provide greater worker protections than those provided by the FLSA. In situations in which an employee is covered by both Federal and state wage laws, the employee is entitled to the greater benefit or more generous rights provided under the different parts of each law. More information about state laws may be found through the state labor offices. (c) Typically, such fixed salaries are paid to employees who do not customarily work a regular schedule of hours and are in amounts agreed on by the parties as adequate compensation for long workweeks as well as short ones, under the circumstances of the employment as a whole. Where the conditions for the use of the fluctuating workweek method of overtime payment are present, the Act, in requiring that “not less than” the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more. On the other hand, where all the facts indicate that an employee is being paid for overtime hours at a rate no greater than that which the employee receives for nonovertime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula.

Effect of Failure To Count or Pay for Certain Working Hours

A claimant may at any time file a complaint under the child labor provisions of the Act or an FLSA claim challenging the correctness of his or her FLSA exemption status determination. A claimant may also file an FLSA claim concerning his or her entitlement to minimum wage or overtime pay for work performed under the Act; however, time limits apply to FLSA pay claims. All FLSA pay claims filed on or after June 30, 1994, are subject to a 2-year statute of limitations (3 years for willful violations). The agency may compute the additional overtime pay owed an employee by allocating the nondiscretionary bonus payable under the agency bonus plan to the weeks or hours during which it was earned and recomputing the employee’s total remuneration, hourly regular rate, and overtime pay for each applicable workweek in the bonus period. The guaranty of pay must be “based on the rate so specified,” in the contract.

Subpart E—Exceptions From the Regular Rate Principles

Accrediting and certifying organizations similar to those listed in this section also may be created in the future. Such organizations may develop similar, specialized curriculums and certification programs which, if a standard requirement for a particular occupation, may indicate that the occupation has acquired the characteristics of a learned profession. (l) Management analysts who study the operations of an organization and propose changes in the organization, program analysts who study program operations and propose changes to the program, and other management advisors generally meet the duties requirements for the administrative exemption. (j) An executive assistant or administrative assistant to a high level manager or senior executive generally meets the duties requirements for the administrative exemption if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance. (a) Each employee is presumed to be FLSA nonexempt unless the employing agency correctly determines that the employee clearly meets the requirements of one or more of the exemptions of this subpart and such supplemental interpretations or instructions issued by OPM. The agency must designate an employee FLSA exempt when the agency correctly determines that the employee meets the requirements of one or more of the exemptions of this subpart and such supplemental interpretations or instructions issued by OPM.

As mentioned earlier, while the FLSA does apply nationwide, overtime pay rules may still vary from state to state because individual states can choose to create their own, stricter labor laws. For example, though the federal minimum wage is currently $7.25 an hour, some states have a higher minimum wage and employers must pay the employees the higher amount. On August 30, 2023, the United States Department of Labor (DOL) released its highly anticipated proposed overtime rule. This rule, if finalized, would increase the minimum salary amount required to be paid to executive, administrative and professional (EAP) employees and the required annual compensation to be paid to highly compensated employees (HCEs) in order for these employees to be considered exempt from the Fair Labor Standards Act (FLSA) overtime pay requirements.

Shift differentials and overtime together can significantly increase your payroll costs. Your payroll software payroll analytics can reveal ways to keep payroll costs within budget. The jewelry store offers a 10% differential for second shift hours and a 20% differential for overnight hours (a night differential). The following general requirements must be met in every case before the overtime computation authorized under section 7(g)(1) or (2) may be utilized.

The application of this provision is discussed in § 5.32 of this title, which should be considered together with the interpretations in this part 778 in determining any overtime compensation payable under the Fair Labor Standards Act to such laborers and mechanics in any workweek when they are subject to fringe benefit wage determinations under the Davis-Bacon and related acts. For covered, nonexempt employees, the FLSA requires overtime pay at a rate of not less than one and one-half times an employee’s regular rate of pay after 40 hours of work in a workweek. Some exceptions to the 40 hours per week standard apply under special circumstances to police officers and fire fighters employed by public agencies and to employees of hospitals and nursing homes. Under section 7(e)(6) and 7(h) of the Act, extra compensation provided by a Premium rate of at least time and one-half which is paid for work on Saturdays, Sundays, holidays, or regular days of rest or on the sixth or seventh day of the workweek (hereinafter referred to as “special days”) may be treated as an overtime premium for the purposes of the Act.

Subminimum Wage

It’s hard to get employees to set their alarms for the middle of the night to get to work. Shift differentials can be a strong incentive and help employers keep their operations running at all hours. flsa overtime rules She worked 30 hours on the night shift, which offers a $5 hourly differential. Employers that add weekend hours during the holiday season might offer differential pay for those irregular hours.

The limitation on an hourly rate of overtime pay under title 5, United States Code, does not apply to overtime pay under the FLSA. Also, the maximum biweekly or annual earnings limitations on title 5 premium pay do not apply to FLSA overtime pay. Computer employees within the scope of this exemption, as well as those employees not within its scope, may also have executive and administrative duties which qualify the employees for exemption under this subpart. For example, systems analysts and computer programmers generally meet the duties requirements for the administrative exemption if their primary duty includes work such as planning, scheduling, and coordinating activities required to develop systems to solve complex business, scientific or engineering problems of the organization or the organization’s customers. Similarly, a senior or lead computer programmer who manages the work of two or more other programmers in a customarily recognized organizational unit, and whose recommendations regarding the hiring, firing, advancement, promotion, or other change of status of the other programmers are given particular weight, generally meets the duties requirements for the executive exemption. Employees in these professions are entitled to receive the minimum hourly wage — although special rules often apply to food service workers and other tipped employees — plus one-and-a-half overtime pay for every hour over 40 hours in a given workweek.

However, employers do not have to compensate employees for a bona fide meal break, which ordinarily lasts at least 30 minutes. Importantly, an employee must be completely relieved from work duties during this uncompensated time and cannot be interrupted by work (even for a short time). Indeed, some courts have held that, where a meal break has been interrupted by work, the entire meal break (not just the time when work was performed) becomes compensable. (a) OPM will send an FLSA claim decision to the claimant or the claimant’s representative and the agency. However, at its discretion, OPM may reconsider its FLSA claim decision when material information was not considered or there was a material error of law, regulation, or fact in the original decision. The request must be submitted in writing and received by OPM within 45 calendar days after the date of the decision.

Joint Cost Allocation: Tips and Examples for Pricing and Marketing

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One of the simplest methods to apportion joint cost is the average unit cost method. Here, the average cost per unit is calculated by simply dividing the total cost of all the joint products incurred before their splitting-off, by the total of the number of units produced all together. Net realizable value method When such products are further processed after split-off, their total costs also include further processing cost. Constant Gross Margin Percentage Method Joint costs are apportioned in the ratio of Joint Cost Value at Separation Point. This method is not suitable when all the Joint Products do not yield constant gross margin %. Product costing methods are used to assign a cost to a manufactured product.

  1. Assuming the byproduct can be sold to an outside party, what is the correct accounting treatment of the byproduct proceeds received by the firm?
  2. Finished production of every kind is multiplied by weight factors to apportion the total joint cost to individual units.
  3. If you spend time and money after the splitoff point, you charge a higher price to recover those costs.
  4. For example, kerosene, fuel oil, gas­olene and other oil products are derived from crude oil.

For example, a dairy farm may incur joint costs for milking, pasteurizing, and packaging milk, cream, cheese, and yogurt. How do you use joint physical measure method joint cost cost allocation to support pricing and marketing decisions? Here are some tips and examples to help you understand and apply this technique.

How can I calculate the share of joint costs in a project?

NPV captures any changes to costs and sale price that might occur as products are produced separately. ‘Managers must decide whether a product should be sold at splitoff or processed further. The sales value at splitoff method of joint-cost allocation is the best method for generating the information managers need for this decision.” Do you agree? Explain.

So a pharmaceutical company’s attempt to justify high prices because of the need to recoup R&D expenses is fallacious. Any costs incurred prior to making the decision have already been incurred no matter what decision is made. In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. There’s a possibility that sales values aren’t available at splitoff. The product’s production may not be far enough along to come up with a price.

Two Joint Cost Allocation Methods in Cost Accounting

Joint cost allocation can be used to support pricing and marketing decisions in a variety of ways. For instance, a petroleum refinery may use the net realizable value method to allocate joint costs based on the market prices and separable costs of each product. Similarly, a furniture manufacturer may use the physical measure method to allocate joint costs based on the volume of wood used for each product. Finally, a pharmaceutical company may use the sales value method to allocate joint costs based on the selling prices of each product at the split-off point. This information can be used to determine the break-even point and margin of safety for each product, as well as design its pricing and marketing mix based on the elasticity and competition of each product.

This type of marketing incurs costs that cannot normally be recovered. It is not typically possible to later “demote” one’s brand names in exchange for cash. Once spent, such costs are sunk and should have no effect on future pricing decisions.

Quantitative or physical units method of joint cost allocation

Show journal entries at the time of production and at the time of sale assuming SRC accounts for the byproduct using the production method.2. Show journal entries at the time of production and at the time of sale assuming SRC accounts for the byproduct using the sales method. The simplest method is just to allocate costs on a pro rata basis based on an agreed set of criteria (for example, number of employees).

There are several methods of joint cost allocation, each with its own advantages and disadvantages. One method is the physical measure method, which allocates joint costs based on a physical measure of output, such as weight, volume, or units. This is a simple and objective approach, but it may not reflect the relative value or marketability of each product or service. Another method is the sales value method, which allocates joint costs based on the sales value of each product or service at the split-off point. This is more realistic and relevant, but it may not be applicable if the products or services are not sold at the split-off point or have different selling prices in different markets. The net realizable value method allocates joint costs based on the net realizable value of each product or service, which is the sales value minus any separable costs incurred after the split-off point.

How to Calculate Joint Costs Using Relative Sales Value Method

A cashew nuts processing unit produces two varieties of cashew nuts, premium and regular, at a joint cost of ₹75000, out of which ₹25000 is the fixed cost. The quantity produced is 100Kg and 150Kg; and sold at ₹750 and ₹600 per Kg, respectively. Add the individual product costs and verify that the total is equal to the total joint-production costs.

He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics. Moreover, the variable cost is determined with the help of units sold, and the fixed cost is ascertained through the contribution margin ratio. However, there is no formal logic for adopting a particular method of apportionment. An organization can opt for any of the methods available, depending upon the business type, uniformity of products, etc. Management may have decided, however, that it is more profitable to process certain products further before they are sold.

In dairy products, the skimming of raw milk yields skimmed milk, cream and butter. Also, in the case of processing coconut, we get coconut water, coconut cream, desiccated https://business-accounting.net/ coconut and jute. For example, $20 million has been spent on building a power plant; the value now is zero because it is incomplete (and no sale or recovery is feasible).

Thus a proper accounting procedure is followed to distribute such expenses equitably among all the joint products so obtained. When such products are further processed after split-off, their total costs also include further processing cost. The idea of sunk costs is often employed when analyzing business decisions. A common example of a sunk cost for a business is the promotion of a brand name.

Under quantitative unit method (also known as physical unit method), the joint cost is allocated among joint products on the basis of measurement units like tons, gallons, pounds or feet etc. You also see the physical measures method of allocating joint costs. The two major methods of allocating joint costs are (1) the net realizable value method and (2) the physical quantities method.