How to avoid provoking a Wage-Hour audit
—and protect yourself if you are audited
Do you have time to keep up on all of your professional reading? Few bookkeepers do. That is why we offer "Professional Readings of Interest" in The General Ledger, the monthly technical newsletter for AIPB members (aipb.org/general_ledger.html). This feature brings you 6-10 key nuggets from leading accounting and business publications that are important for you to see. Here is just one example we gave members in The General Ledger, gleaned from The Westchester (NY) Business Journal.
To avoid major penalties, audit your own practices to ensure FLSA compliance, advises Shawn Smith, Next Level Consulting LLC, Harrison, NY. She cites four common problems:
- Worker classification. You cannot avoid overtime pay simply by paying employees a salary and classifying them “exempt.” To avoid misclassification, know what jobs are exempt (regardless of whether they are salaried or paid by the hour), then review job descriptions and how each job is actually performed.
- Docking pay. An exempt worker docked for a partial-day absence may lose his/her exempt status, costing you retroactive overtime pay, unless the docking is connected to an FMLA-related leave.
- Voluntary or unauthorized work. Nonexempt employees must be paid for time worked, voluntary or not. Even if your policy requires that a manager approve paid overtime, your firm must still pay at least 1½ x the employee’s hourly rate for each hour worked over 40 hours in the workweek.
- Calculating overtime pay. FLSA requires that overtime pay be based on the employee’s regular rate of pay, which is often higher than the base rate because it includes nondiscretionary bonuses and other payments.
Example: Nondiscretionary bonuses are those required under a contract, agreement or promise, express or implied. These include bonuses for production, work quality or to get someone to take or stay on a job and bonuses that employees have come to expect (other than for holiday bonuses). A nondiscretionary bonus given to hourly employees must be added to their gross pay in the week it is earned and must be included when calculating their pay for overtime purposes. [29 CFR 7788.209]
Case: Bill’s pay rate is $9/hr. plus production bonuses. One week he works 43 hours and earns a $27 bonus.
Bill’s regular pay: $387 for the week ($9/hr. x 43 hours) + $27 bonus = $414 straight time pay.
Bill’s overtime pay: $414 earned for the week (including the nondiscretionary bonus) ÷ 43 hours worked = $9.63 regular rate x 50% premium rate = $4.82 x 3 hours overtime = $14.46 premium pay.
Bill’s gross pay: $414 straight time pay + $14.46 premium pay = $428.46 gross pay for the week.
Remember, this is just one example of Professional Readings from just one issue of The General Ledger—America's only publication for bookkeepers. Here's what you will get in your October 2005 issue, yours free every month, when you join:
- A new online tool that quickly helps you avoid W-2 penalties by spotting name/SSN mismatches before you produce your W-2s
- New tax deductions and tax credits for vehicle purchases under the new energy law—but why it takes careful timing to get them.
- How a company proved that it had mailed its taxes timely—and how your company can aovid lateness penalties.
- Tax planning for purchases of SUVs, light trucks and vans—tricky Sec. 179 and depreciation rules explained in simple detail.
- When you must—or need not—pay employees for for each kind of commuting and travel time, such as: to and from job sites, in company vans, travel out of town during working hours, after working hours, on weekends, and more.
- Plus: Bookkeepers' quiz... bookkeepers' Q&A... and more.
If you consider yourself a professional, please accept this invitation to become a member of The American Institute of Professional Bookkeepers. Get the benefits you deserve by clicking www.aipb.org/member_benefits.html. Enroll now.
BOOKKEEPING TIPS is a twice monthly newsletter published by The American Institute of Professional Bookkeepers (AIPB), Suite 500, 6001 Montrose Road, Rockville, MD 20852. Tel.: 800-622-0121, Fax: 800-541-0066,