Thursday, July 15, 2021

There’s nothing illegal about paying employees a “day rate,” as long as you also pay an overtime premium for overtime hours

Here's how the president of Fusion Japanese Steakhouse describes the manner in which his company (unlawfully) pays its kitchen staff:
I pay a teriyaki chef $120 per day. He worked ten hours—ten hours a day. So here’s how to calculate it. He works ten hours a day at $120 a day. I divide it by hours, and it’s $10.97 per hour. If he works overtime, it will be $16.20 overtime pay. So $120 a day, I have it covered because it was way past—way beyond $7.25 minimum wage rate. So I take consideration of the industry standard, you know. So either it is for teriyaki chef, it is $120 or $120 per day.
In other words, as the court correctly surmised in Walsh v. Fusion Japanese Steakhouse, the employer "works backward to calculate the hourly rate of the employees based on the day rate." That backward calculation, however, to jerry-rig an hourly rate plus and overtime rate to arrive at the agreed-upon day rate, is not legal.

The Department of Labor, in its regulations interpreting the Fair Labor Standards Act, explains the correct manner in which an employer must calculate an overtime premium based on a flat day rate.
If the employee is paid a flat sum for a day's work or for doing a particular job, without regard to the number of hours worked in the day or at the job, and if he receives no other form of compensation for services, his regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. He is then entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.

In other words, if you assume the same $120 per day rate over a five-day workweek, the employee would earn a total of $600 in straight time wages for that workweek. If, for example, the employee worked no more than 40 hours that week, then that week's pay is perfectly lawful under the FLSA (as long as the effective hourly rate — the total compensation for that week divided by the number of hours worked — is not less than the statutory minimum wage). 

But, if the employee worked more than 40 hours, then the employer must complete one additional calculation and corresponding payment to comply with the FLSA. The employer must pay an additional 0.5 per hour premium to the employee for any hours worked in excess of 40. Thus, using our same hypothetical, if the employee had worked 60 hours that week, his effective hourly rate would be $10 per hour ($600 / 60 hours), and he would be entitled to an additional $5 per hour for each of the 20 hours he worked over 40 that week. Thus, his employer would owe him $700 that week, not just the $600 day rate.

It all makes sense when you map out the math. But that's the point. You cannot ignore the math when calculating the pay owed to a non-exempt employee. Otherwise, the math you'll end up doing will include calculations of liquidated damages and attorneys' fees, which is always way more costly than just paying your employees correctly in the first place.

* Photo by NeONBRAND on Unsplash