One of the biggest challenges to staying compliant is accurately paying overtime when it involves non-exempt salaries or daily rates. Read on to see how you can successfully meet that challenge.
Non-Exempt Salaries
Overtime wages must be paid to salaried employees if they do not meet the test for exempt status. Such overtime wages are based on 1.5 times the regular rate of pay.
Example: a non-exempt salaried employee is paid $1200/week based on 40 regular hours.
- Regular Rate of Pay: $1200/40 hrs = $30
- Overtime Premium Rate: $30 x 1.5 = $45
Methods of entering/paying salary:
- Employee Profile: After entering hours in Daily Payroll, the Batch Report will pick up the salary entry. In this method, the hours are entered with $0 rate.
- Manual Entry: Salary can be entered manually in Daily Payroll or Check Entry. If you use the Check Entry method, you must manually add any overtime.
- Data Collection Import: If importing hours from data collection exports, rates are applied to the hours. Therefore, an offset is needed so that wages are not duplicated. This can be defined in your import configuration.
Daily Rates
According to federal law, an employee paid by the day may be exempt if: (1) there is a guaranteed weekly salary regardless of the number of days/hours worked, and (2) there is a “reasonable relationship” between the guaranteed amount and the amount actually earned.
The “reasonable relationship” test generally means the employee’s usual earnings cannot greatly exceed the guaranteed weekly salary.
Example that may pass:
- Guaranteed weekly salary: $1,500
- Typical weekly earnings: $1,700–$2,000
Example that may fail:
- Guaranteed weekly salary: $1,352
- Typical weekly earnings: $4,000
The second example looks more like pure day-rate compensation than a true salary.
This federal regulation became especially important after Helix Energy Solutions Group, Inc. v. Hewitt, where the Supreme Court emphasized that high earnings alone do not satisfy the salary basis requirement. The employee in the case was highly-compensated but was paid on a daily basis and did not have a guaranteed weekly salary. Therefore, the court determined he was not exempt from overtime.
The lesson? If you are paying employees daily rates and they do not have guaranteed weekly salaries that meet exempt qualifications, you must record the hours they work and compensate them for any overtime.
How to Pay Overtime on Day Rates in Datatech Software
- Go to Payroll > Setup > Wage Type to set up a wage type for Daily Salary. The Base Pay Type entry should be set to Piecework.
- Enter Hours Worked in the P/W Hrs (Piecework Hours) column during payroll entry.
- When you run the Daily Payroll Batch Report to review or create checks, select the Overtime Premium Rule just like other payroll batches.
