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BEWARE OF BONUSES AFFECTING OVERTIME CALCULATIONS

Overtime is paid at the employee’s “regular rate of pay”.   Some new court decisions and subsequent interpretations have also provided that non-discretionary production bonuses, must be included in an employee’s “regular rate of pay” before figuring overtime payments.

The definition of an non-discretionary production bonus is: The employer predetermines the specific criteria that is required to receive a bonus. Employees expect to earn the bonus if they meet the criteria. An employer’s incentive pay plan that provides additional compensation for exceeding performance or productivity goals is an example of how nondiscretionary bonuses are executed in the workplace. 

To calculate overtime for an employee with this bonus program, you must allocate the bonus dollars over the time period the employee earned the bonus (week, month, year, etc.)  The courts explained it this way:

  • Take the bonus earned during the bonus period;
  • Divide the bonus by the total number of hours worked during the bonus period;
  • Multiply the resulting number by 0.5; and
  • Multiply the resulting number by the total number of overtime hours worked during the bonus period.

You must then show this amount on the wage statement (payroll stub) for the pay period that the bonus is paid.

Here is a hypothetical offered by the court:

The hypothetical employee earned a $360 monthly bonus for work performed during the previous month of December, from December 1 to December 31, 2017. This bonus would be reflected on the January 7 to January 20, 2018 wage statement. To calculate the OverTimePay-Override line, the hours worked in December 2017 would be used because that is the time period in which the bonus was earned. In this hypothetical, the employee had worked 160 regular hours and 20 overtime hours in December 2017, for a total of 180 hours. First, divide $360 by 180, which results in $2. This number represents the increase to the regular hourly rate. Multiply $2 by 0.5 and the result, $1, represents the increase to the overtime hourly rate. Then, take $1 and multiply it by 20, the overtime hours worked during December 2017, and the result, $20, is the overtime pay adjustment, which would be identified as the OverTimePay-Override line on the wage statement.​

This is not the calculation you would use for a flat-rate bonus.  The court said that the flat-rate bonus should be calculated as: A flat sum bonus is “factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.”

This reasons that a bonus would be further diluted if you include all hours including overtime hours in the calculation.

California has more information about how to calculate overtime for different situations.  Here are a few common questions but you can find more at https://www.dir.ca.gov/dlse/FAQ_Overtime.htm

3. Q. Is a bonus included in the regular rate of pay for purposes of calculating overtime?

A. Yes, if it is a nondiscretionary bonus. A nondiscretionary bonus is included in determining the regular rate of pay for computing overtime when it is based upon hours worked, production or proficiency or as an incentive to remain employed by the same employer. Incentive bonuses include flat sum bonuses. Flat sum bonuses must be computed by dividing the bonus by the maximum legal regular hours worked, not by the total hours worked during the pay period. Bonuses designed as an incentive for increased production for each hour worked are divided by the total hours worked in the pay period. Discretionary bonuses or sums paid as gifts at a holiday or other special occasions, such as a reward for good service, which are not measured by or dependent upon hours worked, production or efficiency, are not included for purposes of determining the regular rate of pay.
4. Q. Are any amounts excluded from the regular rate of pay?
A. Yes, there are certain types of payments that are excluded from the regular rate of pay. Examples of some of the more common exclusions are sums paid as gifts for special occasions, expense reimbursements, payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, premium pay for Saturday, Sunday, or holiday work, and discretionary bonuses.
5. Q. Are salaried employees entitled to overtime?
A. It depends. A salaried employee must be paid overtime unless they meet the test for exempt status as defined by federal and state laws, or unless they are specifically exempted from overtime by the provisions of one of the Industrial Welfare Commission Wage Orders regulating wages, hours and working conditions.
6. Q. How is overtime calculated if I work at different rates of pay in the same workweek?
A. If you are paid two or more rates by the same employer during the workweek, the regular rate is the “weighted average” which is determined by dividing your total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours. For example, if you work 32 hours at $11.00 an hour and 10 hours during the same workweek at $9.00 an hour, the weighted average (and thus the regular rate for that workweek) is $10.52. This is calculated by adding your $442 straight time pay for the workweek [(32hours x $11.00/hour) + (10 hours x $9.00/hour) = $442] and dividing it by the 42 hours you worked.

 

IRS, FBI WARN OF W-2 PHISHING SCAM

We recently recieved this article from CalChamber and wanted to pass along this information as quickly as we could.  Please take necessary steps to avoid problems with these scams.

 March 5, 2018 Gail Cecchettini Whaley, CalChamber Senior Employment Law Counsel

HRWatchdog, HRCalifornia’s Employment Law Blog, © California Chamber of Commerce. (Must have link back to HRWatchdog) http://hrwatchdog.calchamber.com/

The Internal Revenue Service (IRS) and the Federal Bureau of Investigation (FBI) recently warned payroll and human resources professionals of a dangerous Form W-2 phishing scam that victimized hundreds of organizations and thousands of employees during the last two tax seasons—and this season is no different.

The scam goes like this: Cyber-criminals identify your company’s chief operating officer or other high-level executives, pose as the executive and send emails to payroll personnel. In these emails, the fraudsters request copies of employee Forms W-2 or ask for a list of all employees and Social Security numbers (SSNs). Using a technique called business email compromise or business email spoofing, these emails look like they were sent from within your organization.

No Typical Email

According to the IRS, the initial email may be a friendly, “Hi, are you working today?” type of exchange before the fraudster asks for all Form W-2 information. But that isn’t always the case.

Last year, one actual email simply asked payroll, “[S]end me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary) as of 2/22/2016.”

Criminals then use the stolen personal information and data on the W-2s, such as SSNs, to file fraudulent tax returns for refunds. Or they sell the information on the “Dark Net.”

Last year’s scams affected all types of employers—small and large businesses, public schools and universities, hospitals, tribal governments and charities. In 2017, reports about this scam to phishing@irs.gov from victims and nonvictims jumped to approximately 900, up from 100 the previous year. More than 200 employers were victimized in 2017, which translated into hundreds of thousands of employees who had their identities compromised.

Action Items

Employers need to educate payroll, HR and finance personnel of the W-2 scam. The IRS also urges employers to:

◾Consider limiting the number of employees who have authority to handle Form W-2 requests; and

◾Require additional verification procedures to validate the actual request before emailing sensitive data such as employee Form W-2s.

Employers also should immediately notify the IRS if they are victimized. The IRS can then take steps to help prevent employees from being victims of tax-related identity theft. Unfortunately, because of the nature of these scams, some businesses and organizations don’t realize for days, weeks or months that they were scammed.

The IRS has a special email notification address specifically for employers to report Form W-2 data thefts. Here’s how Form W-2 scam victims can notify the IRS:

◾Email dataloss@irs.gov to notify of the data loss and provide contact information, as listed below.

◾In the subject line, type “W2 Data Loss” so that the email can be routed properly. Do not attach any employee personally identifiable information data.

◾Include the following:

◾Business name;

◾Business employer identification number associated with the data loss;

◾Contact name;

◾Contact phone number;

◾Summary of how the data loss occurred;

◾Volume of employees impacted.

Businesses and organizations that fall victim to the scam and/or organizations that only receive a suspect email but do not fall victim to the scam should send the full email headers to phishing@irs.gov and use “W2 Scam” in the subject line.

Employers can learn more at the IRS webpage on Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers.

A February 21 press release from the FBI Internet Crime Complaint Center, ic3.gov, provides additional information about how to report the situation to state tax agencies and other law enforcement officials.

 

Staff Contact: Gail Cecchettini Whaley (CalChamber)

NEW PAYROLL \ W-2 SCAM MAKING THE ROUNDS….BEWARE!

Recently the Internal Revenue Service (IRS) issued an alert to payroll and human resources professionals to warn them about an email scam.  In our effort to keep our customers protected and informed we are passing along this information.  Also, please note that all W-2 forms should be distributed in California no later than January 31.  If your w-2 is returned by mail as undeliverable, do not open the envelope. The sealed envelope with its postmark serves as proof that you attempted to send the Form W2 on time. Make a copy of the envelope and keep the copy in your records for 4 years.

The IRS is urging company payroll officials to double check any executive-level or unusual requests for lists of Forms W-2 or Social Security numbers (SSNs).

In this scam, cybercriminals attempt to trick payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then use the stolen personal information and data to try to obtain money, including filing fraudulent tax returns for refunds.

The criminals send a fake or “spoofing” e-mail pretending to be from the actual CEO or CFO of the company. In the email, the “CEO” requests a list of employees and information about the employees, including their SSNs, from company payroll officers or human resource employees.

The following are some of the details that may be contained in the emails:

  • Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
  • Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, and Salary).
  • I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me ASAP.

The IRS warns that cybercriminals are using more sophisticated tactics to try to steal even more data that will allow them to impersonate taxpayers.

Concerned employers can visit the IRS website to get assistance with reporting phishing and other online scams.

For more information on protecting personal, financial and tax data, see IRS.gov/taxessecuritytogether for additional steps businesses and individuals can take. Businesses that retain sensitive financial data are also encouraged to review and update their security plan. Safeguarding Taxpayer Data, A Guide for Your Business, provides a starting point and recommendations from the IRS.