Expert: Shirley McAllister, CPP, PHR - 8/22/2008

Question
QUESTION: My employer insists on using a 2088 hour year.  Additionally, when we terminate an exempt person mid-pay period (we pay semi-monthly) he wants the days pro rated over the period paid (be it an 80; 88 or 96-hour period).  If the person worked one day in an 80-hour period it is 8/80 * semi-monthly salary.  If they worked one day in a 96-hour period they would be terminated at 8/96 * semi-monthly salary.  I can't find a law that states he CAN'T do this.

ANSWER: The 2080 comes from 40 hours a week x 52 weeks in a year is equal to 2080 and not 2088.

So 40,000 a year annual salary divided by 2080 is 19.23 an hour x 8 hours is 153.84 per day.

So if 80 hours pay period is 19.23 X 80 = 1538.40 0r
if 10 days X 153.84 = 1538.40

If they work only one day less and have 9 days than it would be 9 x 153.80 or 1384.20.

80-8= 72 x 19.23 = 1384.56 or

96-8= 88 X 19.23 = 1692.24

You can also do it in days

10-1=9 x 153.84= 1384.56
12-1=11 x 153.84= 1692.24

Doesn't matter if you use hours or days the amount is still the same amount. This is how we calculate salaried that terminate before a payperiod is done.

The only way it would be different is if an employee is regularly scheduled to work part time than they would be figured at a different hourly amount.

If the salaried exempt is regularly scheduled to work 20 hours a week you would need to take 20 x 52 to get a ratio of 1040 instead of 2080.

It still won't matter how you do it, you still will come up with pretty much the same amount give or take a few cents in rounding.

You could use 5 days a week x 52 weeks in a year and get 260 days a year. Divide the 40,000 annual salary by 260 = 153.84. Same amount.
10 days in a payperiod less 1 day not worked is 9 days x 153.84= 1384.56.

Same amount.

Shirley

---------- FOLLOW-UP ----------

QUESTION: My employer wants to pay based not on the 2088 hr. or 2080 hr. annual rate, but based on the pay period covered.  August 1 - 15 = 11 working days.  He believes if the employee is paid for 1 day, it is actually 1/11 or $151.51 for 1 day.  If we terminated between Aug 16 - 31 it would be 1/10 or $166.67 for 1 day.  Does this seem fair?

ANSWER: The payperiod wages have to come from somewhere. So the pay period amount is probably based on the 2808. Where did the company come up with the payperiod amount?

So this is probably what the company did. 40,000 a year divided by 24 pay periods for semi-monthly is 40,000 divided by 24 = 1,666.66.

This can result in a slightly smaller amount on one day and a slightly larger amount on the other one as you can see.

The correct amount being 153.84.  Now the 151.51 is $2.33 less for the total day.  The 166.67 is 12.84 more.

I don't know of any laws that says he cannot do it this way, I would not do it this way.  The overage is okay an employer is never going to be penalized for paying too much to an employee. The underage is not a significant amount I don't know that anyone will be sued over $2.33 cents.

If it is a policy either written or in use which is a policy that is being done but not written and it is done the same across the board for all employees no exceptions I think it is fine as long as it is always the same for everyone. This is how the company calculates the prorated payroll all the time. As long as a policy is consistent and as long as the wage paid is at least minimum wage it meets the FLSA standards.

Depends on how much time and energy you want to put into the small variance that it makes. You will have to pick and choose your battles, is this one that you want to fight and if so is there a big enough gain to make it worth the battle?

That is what you have to decide.

Shirley

---------- FOLLOW-UP ----------

QUESTION: This $2 dollar variance per hour is VERY significant if the employee (upon termination) is paid for unused vacation time at the lower rate (96 hour period) and alternatively at the higner rate in a short period (80 hours) depending on when he/she is terminated.  'Consistency' goes out the window because each pay period (from first to 15th and 16th to EOM) varies in number of total work hours depending on where the weekends fall. The hourly rate of the exempt employee is dependent on the actual calendar date he/she is terminated!

Answer
It is a 2.33 per day variance not per hour!

If it is significant than the battle is one you wish to fight.  This is applying to a day not worked for a terminated employee.

I didn't see anything mentioned about vacation time. Vacation time is figured differently not on the ratio you gave me as it is a supplemental wage. It is also subject to the supplemental tax withholdings which are substantially different.

The ratio should not at all apply to paid out vacation pay.



Shirley

You are correct it will be slightly inconsistent depending on the number of days. The number of days of a semi monthly pay period is never than a couple of days different. At 2.33 a day that is 5.00 or less of a variance.

What I was referring to in consistency is the method of payment. If all the time the employer calculates it the same way and doesn't change than he is using a consistent method of calculation.

Shirley