Fair Labor Standards Act (FLSA) regulations set out that the overtime that employees earn over a set period is adjusted when they receive a wage augment such as a bonus or lump sum payment. FLSA overtime is calculated based on the actual time that an employee works and their earnings, including any bonuses or lump sum payments.
Before You Begin: This topic is applicable for US employees only.
You can configure Dayforce to calculate FLSA overtime adjustments for amounts such as bonuses and lump sum payments. The functionality for generating these adjustments is available in the Payroll module and WFM module.
Take, for example, an employee who earns $10 an hour for regular pay with a regular workweek of 40 hours. If the employee works overtime, they are entitled to regular pay of $10 an hour, plus time and a half (1.5 x 10 hours, or $15 an hour) for any hours over the regular 40 hours per week.
This week, the employee works 50 hours and earns $550, which is comprised of the following:
- $400 in regular earnings ($10 x 40 hours)
- $150 in regular plus overtime earnings ($10 x 10 hours) + ($5 x 10 hours)
Of those earnings, $50 are overtime. You can also determine this overtime amount using the formula 0.5 (regular hourly rate x overtime hours), or in this example 0.5 ($10 x 10 hours).
Now, say the employee also receives a $30 lump sum reward for their work this week. FLSA regulations require that this amount should impact the regular hourly rate that was used to calculate the employee's overtime.
The application calculates the new regular hourly rate using the formula (regular eligible earnings + eligible wage augments) / hours worked. In this case, regular eligible earnings are $500, which is total earnings minus the $50 overtime. Using the above formula, ($500 + $30) / 50 hours results in rate of $10.60 per hour. This means the overtime should have been based on a regular hourly rate of $10.60 rather than $10.
Using the overtime formula of 0.5 (regular hourly rate x overtime hours), the application calculates 0.5 ($10.60 x 10 hours) to be $53 in overtime earnings.
The application then compares the amount of overtime earnings that the employee actually received to the amount they should have received. In this example, the employee received $50 of overtime earnings, but should have received $53. Because the overtime was already generated, the application pays out the difference of $3 in an overtime adjustment.
Note: Requirements in the state of California for lump sum bonuses set out that the hourly divisor used to determine the updated hourly rate is capped at 40 hours and excludes overtime or premium hours. So, in the above example, the formula for California should be $30 / 40, resulting in an hourly rate of $0.75. Using the overtime formula, the application calculates 1.5 x $0.75 x 10 hours to be $11.25 in overtime earnings. This results in an overtime adjustment of $11.25.