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By Joe Marconi
For the first time in a VERY LONG time, I see a lot of positive news with regard to labor rates. More and more shop owners and managers are crunching their numbers and increasing their labor rates to better ensure their companies achieves a profit and also to be able to pay their employees what they deserve.
Profit is needed in order to build for the future and to be able to attract quality people.
I really think that this is perhaps the best time in our recent history to revisit your labor rates and bottom line and adjust your rates accordingly.
Have you adjusted your labor rates recently, or plan on it?
Started a new thread based on a comment from: Are you paying your employees what they deserve?
Thanks to CTC who warned that we need to be Compliant in our pay plans, I called the Dallas Office of the Dept of Labor Wage and Hour Division to check on my compliance. Very friendly and knowledgeable. Didn't even ask who I was. I encourage you to call. However, what she said was super-complicated if it's the first time that you've heard it. It still hurt my head on today's call. The goal of this message is to explain OT calculations and then to explain the flat rate pay as related to OT. I'm only presenting this to give you background before you call W&H yourself. I'm not an expert on W&H.
This focuses on non-salaried employees who are eligible for OT payments.
In general, OT pay is more complicated if you have variable pay plans (bonuses or extra payments). Regular hourly folks working OT get 1.5 times their "regular rate" (which is the same as their hourly rate). If they don't get any extra pay, this is easily computed.
When variable pay is involved, we need to know how much the employee is really making this week. That is, we must calculate their "Regular Rate" because the variable pay (bonuses) increases their normal hourly rate. When we pay OT, we must pay 1.5 times their "Regular Rate". This is a protection for the employees to ensure that they are being fairly paid even though their pay rate varies week to week.
Regular Rate Computation:
Figure out the employee's total compensation for this week (we are ignoring OT for this calculation). Divide this by the total hours worked this week. This is their regular rate for THIS week. For example: Joe makes $10/hr and earned $100 bonus this week while working 50 hours. His total pay for the week is $10 * 50 hours + $100 bonus = $500 + $100 = $600. His Regular Rate is $600/50 hours = $12/hr. When you pay him OT, you will be paying him 10 hours * 12 Regular Rate/hr * 1.5 = $180. This is added to his base rate of 40 hours * $10/hr, so this week, he makes $400 + 180 = $580 + $100 bonus = $680 total pay.
There is a shortcut to computing regular rate that I find faster to compute. Just take the variable pay (bonus) and divide it by the hours worked. $100 bonus/50 hours = $2/hr Joe's Regular Rate is $10+$2=$12/hr. His overtime rate is $12 * 1.5 = $18 (instead of $15).
Using ADP (and other payroll systems):
For employees that are getting OT with variable pay, I create a separate pay line in my payroll. Line 1 is 40 hours at their normal hourly rate. Line 2 is OT hours at Regular rate. The payroll software multiplies the regular rate * 1.5 to calculate their OT pay.
Regular Pay Line: 40 Hours @ $10/hr OT Pay Line: 10 Hours @ $12/hr Flat Rate:
Per W&H, Flat Rate still requires OT pay if more than 40 hours are worked. Therefore, we are required to compute a "Regular Rate" to pay OT. This means we need time clock records. W&H suggested a few different ways of computing it for Flat Rate employees (one was a weighted average, but I didn't dig into this). Also, minimum wage must be adhered to as well.
I threw a few examples of pay (flag bonuses, incentives, make-up hours, etc) at W&H and in the end, it didn't matter what the mix of payments were. All payments are combined to compute a Regular Rate. This can be bonuses for flagged hours or bonuses for sales or it could be 20 hours of flag and 20 hours of guaranteed pay (to equal 40 hours). What mattered was how many hours did the non-salaried worker work? What is their regular rate? Pay OT using the Regular Rate.
By Joe Marconi
This Sept 11 marks 20 year when four planes were hijacked, the Twin Towers were destroyed and 3000 people lost their lives in the terrorist attack.
The day after, Sept 12, Americans came to together as one. Let us all once-again reunite as Americans.
Let us never forget what happened on September 11, 2001.