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The Certified Payroll Professional Corner: Regular Rate Calculation for Overtime Purposes

Christopher Wood, CPP  

· 5 minute read

Christopher Wood, CPP  

· 5 minute read

In our last edition of the Certified Payroll Professional Corner (CPP), we talked about Form I-9 (Employment Eligibility Verification).

Last edition’s question. We asked: “There are three sections to Form I-9. Employers must complete and sign Section 2 of Form I-9 within a certain period of time from the date of hire (first day of work for pay) for a new employee. What is that period of time?” The correct answer to this question is “b. three days.”

Form I-9. We provided an overview of Form I-9 last week and discussed the role the form plays in the new hire process. You may wonder, isn’t this a human resources issue and not a payroll one? As any payroll professional can tell you, the line between payroll administration and human resources is a blurry one, making this topic relevant in the CPP exam. A well-rounded CPP must be knowledgeable regarding the various processes involved in onboarding a new employee.

Costly I-9 violations. In a recent Administrative Law Judge ruling, a staffing company with multiple sites in Oregon and Washington was ordered to pay over $1.5 million in civil penalties for violations related to Form I-9. The employer failed to prepare and/or present Forms I-9 timely, ensure proper completion of Sections 1, 2, and 3 of the form, and also was found to have backdated some of the forms. What’s interesting to note about the case was the payroll manager played a significant role in the investigation. While the payroll manager admitted they were responsible for personnel forms (including Forms I-9) and payroll for the company, they claimed they did not directly onboard new hires, delegating the task to an administrative assistant who completed the forms. Shifting responsibility will not help an employer avoid liability. Therefore, payroll professionals must know the legal and proper hiring practices and train staff accordingly if delegating such responsibilities.

COVID-19 challenges. Section 2 of the I-9 form requires an employer’s representative to review documents and attest that the documents were presented and appeared genuine. Also, employers are required to complete Section 3 of Form I-9 for reverification and rehires. With challenges posed by COVID-19, the Department of Homeland Security (DHS) and the U.S. Immigration and Customs Enforcement (ICE) relaxed its I-9 policy due to the prevalence of remote work, permitting employers to inspect Section 2 documents remotely via video, fax, or email. This flexible policy is due to expire October 31, but has been extended numerous times during the pandemic.

Now onto the next question!

Regular rate calculation for overtime. Determining what must be included in the regular rate calculation for overtime purposes can be confusing. Whether an employer is aware of what must be included in calculating the regular rate will not shield the employer from costly violations under the Fair Labor Standards Act. For example, when calculating the regular rate for overtime pay, nondiscretionary bonuses must be included.

Calculation example. Taylor works for Clothes Barn as a retail clerk at a rate of $9.50 per hour. This week, Taylor worked 42 hours and earned a nondiscretionary bonus of $50. The regular rate for overtime purposes is calculated as follows:

  • ((42 x $9.50) + $50 bonus) ÷ 42
  • = ($399.00 +$50 bonus) ÷ 42
  • = $449 ÷ 42
  • = $10.69 per hour (regular rate for overtime purposes)

CPP quiz question. What item must be included for the purposes of figuring the regular rate for overtime purposes?

  1. discretionary bonuses
  2. employer contributions to benefit plans
  3. payments from a profit-sharing plan
  4. commissions

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