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Paying nonexempt employees a salary? Be sure to get agreement on hourly rate

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in Human Resources,Overtime Labor Laws

The Fair Labor Standards Act requires employers to pay overtime for employees who work over 40 hours per week. They get 1.5 times their regular rate of pay for those extra hours.

Determining the amount of overtime pay depends on employees’ hourly rate of pay for the first 40 hours. That can sometimes be more complicated than it sounds, especially for employers that pay their hourly employees a set amount for their entire workweek, including overtime.

And it’s doubly true in California, which requires that absent a specific, mutual agreement as to the amount of the hourly rate, the salary paid is divided by 40 hours to arrive at the hourly rate.

Additional hours are then paid at 1.5 times that rate.

Employers that included overtime in the salary and don’t have an agreement on the regular hourly rate may end up owing additional money for overtime.

Recent case: Bao Yang and two other employees worked for Shang­hai Gourmet in nonexempt positions, but were paid a set salary for all hours including overtime. They never ex­­plicitly agreed to a base hourly wage.

As a result, when they sued for overtime pay, the court required their employer to divide that set salary by 40 to arrive at their base hourly rate. Overtime then had to be calculated based on the number of hours eligible for overtime times 1.5. (Yang, et al., v. Shanghai Gourmet, No. 10-17830, 9th Cir., 2012)

Free checklist: Need help deter­­mining who’s exempt? Download our free, easy-to-use guidance at: www.theHRSpecialist.com/checklist.

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