Navigating FLSA Pitfalls in Overtime Pay Amid Workforce Incentives
With recent workforce challenges, some contractors are offering incentives to workers, especially on high-need projects. However, this can create issues under the Fair Labor Standards Act (FLSA), particularly regarding overtime pay calculations based on the regular rate of pay.
The Fair Labor Standards Act (FLSA) (29 U.S.C. § 201 et seq.) is a federal law that sets minimum wage, overtime pay, recordkeeping, and youth employment standards for employees in the private sector and in federal, state, and local governments. For non-exempt workers, including those in construction trades, the FLSA requires overtime pay at 1.5 times the employee's regular rate of pay for any hours worked over 40 in a workweek (29 U.S.C. § 207).
The challenge comes from incentive pay, like bonuses, which can increase the regular rate of pay, meaning a higher overtime rate is needed. According to the FLSA, the regular rate includes all compensation for employment paid to, or on behalf of, the employee, unless specifically excluded (29 U.S.C. § 207(e)). The Supreme Court defined the regular rate as "the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed." Walling v. Youngerman Reynolds Hardwood Co., 325 U.S. 419 (1945). This includes base pay and most bonuses, unless they fit into specific exclusions, which attendance or productivity bonuses typically do not.
For instance, if a worker is paid $1,000 for a regular 40-hour workweek, their regular rate is $25 per hour, and their overtime rate is $37.50 per hour. But, if the worker gets a $200 weekly attendance bonus, their weekly pay increases to $1,200, the regular rate rises to $30 per hour, and the overtime rate becomes $45 per hour.
Mistakes in calculating overtime pay can lead to significant legal and financial consequences. Violations of the FLSA may result in penalties like double damages and the payment of attorneys' fees. Also, these cases are often filed as collective actions or class actions, increasing potential liability and defense costs.
In conclusion, AGC of Ohio members should be careful when providing incentive pay. Making sure the "regular rate" is correctly calculated when overtime is worked is essential to avoid costly litigation and penalties. Employers need to understand and comply with FLSA requirements to prevent these potential issues.
Dan Edwards
Executive Vice President and General Counsel
AGC of Ohio