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Keep your cool and vanquish your tough summer pay problems

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in Office Management,Payroll Management

It’s summertime soon, and the Payroll living is anything but easy. Every employee wants off at the same time. (Not gonna happen!) Unpaid interns flood the office. Employees don’t understand how their pay is calculated if they work overtime during a holiday or vacation week.

Here’s what you need to know to keep Payroll running smoothly this summer.

Nonexempts and overtime

July 4 falls on the worst possible day for staffing concerns—Thursday. If your company isn’t springing for Friday as a vacation day, it’s a safe bet that many employees will want that day off, too. Then there’s Memorial Day and Labor Day, and other Mondays/Fridays off for those who vacation one long weekend at a time.

What’s the problem? If you include nonexempt employees’ days off in their regular rates when figuring their overtime rates, you’ll overpay.

Payroll rule No. 1: Vacation or holiday pay is idle time pay, which isn’t included in the regular rate calculation.

Example: Susan earns $15 an hour and works eight hours a day. She takes a paid vacation day on Friday. Monday through Thursday she works 45 hours, for a total of 53 hours.

  • Wrong way: She earns $600 in straight-time pay, $120 in vacation pay, and $292.50 in overtime ($15 × 1.5 = $22.50 overtime rate × 13). Total pay: $1,012.50.
  • Right way: She still earns $600 in straight-time pay and $120 in vacation pay, but only $112.50 in overtime ($15 × 1.5 = $22.50 × 5). The eight hours of vacation aren’t counted. Total pay: $832.50. Total savings for one employee: $180.

What if a nonexempt works 38 hours and then takes a vacation day?

Payroll rule No. 2: No overtime is due, because he or she is paid for 38 hours of straight time, plus eight hours of vacation pay. The total equals 46 straight time hours, but eight of those hours are for idle time.

Paying exempts

If the business closes for a full workweek, you don’t have to pay exempts; they can take vacation, if they have it. Partial-week closings are more complicated.

Payroll rule No. 3: If you have a bona fide time off plan, you may require exempts to use their accrued time (but maybe not in California) during the partial-week shutdown. Caveat: This strategy fails for exempts whose leave banks would result in a negative balance due to current debiting or for those who already have negative time in their banks; those employees must receive their full pay.

Summer hours

Not everyone can have Fridays or Mondays off, and that can make for grumpy employees. Idea: Switch to half-day Fridays through Labor Day. To reduce work hours on Friday without reducing pay, lengthen the four preceding workdays. Since longer days may not sit well with employees (half-day Fridays notwithstanding), combine these longer days with shorter meal periods.

Warning: Shorten unpaid meal breaks to 30 minutes, but not shorter. Reason: The Department of Labor objects if unpaid meal periods are shorter than 30 minutes.

Fashion statements

Employees may pay for uniforms through payroll deductions, if the deductions don’t cut into their overtime pay or reduce their pay to below the minimum wage. Watch out: Deductions can’t be made from the pay of minimum wage workers. For employees who earn more, in weeks they work overtime, deductions may be made from non-overtime pay down to the minimum wage; they must continue to receive their full overtime pay.

Key: Make sure state law allows uniform deductions; California, for example, mandates that employers pay for uniforms.

Opportunity knocking

Finally, beware of college students working for résumé credit. Unpaid internships are popular ways for college students to gain practical experience.

Payroll rule No. 4: Unpaid internships are OK if all of the following apply. Interns:

  • Are considered trainees and they, not you, benefit from the training
  • Don’t displace employees
  • Are closely supervised
  • Have received no promise of future employment
  • Have no expectation of being paid.

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