2–1
CHAPTER 2
Learning Objectives
After studying this chapter, students should be able to:
1. Explain the major provisions of the Fair Labor Standards Act.
2. Define hours worked.
3. Describe the main types of records used to collect payroll data.
4. Calculate regular and overtime pay.
5. Identify distinctive compensation plans.
Contents
Chapter 2 outline:
LEARNING OBJECTIVES
THE FAIR LABOR STANDARDS ACT
Coverage
Enterprise Coverage
Individual Employee Coverage
Employer
Employee
Employees of a Corporation
Partnerships
Domestics
Statutory Employees
Statutory Nonemployees
Interns
Wages
The Minimum Wage
Paying Less Than the Minimum Wage
Paying More Than the Minimum Wage
State Laws
Paying a “Living Wage”
Tips
Workweek
2–2 Payroll Accounting
Exemptions from FLSA Requirements
White-Collar Workers
Test of Exemption
Salary Basis
Blue-Collar Workers
Equal Pay Act
Child-Labor Restrictions
Nonfarm Occupations
Agricultural Occupations
Certificate of Age
Wage Theft
Penalties
Misclassified Workers
Wage and Hour Provisions (Willful Violations)
Providing False Data
Repeated Violations
Child-Labor Provisions Violations
Areas Not Covered by the FLSA
DETERMINING EMPLOYEE’S WORK TIME
Principal Activities
Clothes-Changing Time and Wash-Up
Travel Time
Preliminary and Postliminary Activities
Fractional Parts of an Hour
Absences
Tardiness
RECORDS USED FOR TIMEKEEPING
Time Sheets
Time Cards
Computerized Time and Attendance Recording Systems
Next Generation
Touch-Screen Technology
Internet
Chapter 2 2–3
Biometrics
IVR
METHODS OF COMPUTING WAGES AND SALARIES
Time Rate
Calculating Overtime Pay
Converting Weekly Wage Rates to Hourly Rates
Converting Biweekly Wage Rates to Hourly Rates
Converting Monthly Salary Rates to Hourly Rates
Converting Semimonthly Salary Rates to Hourly Rates
Salaried Nonexempt Employees
Salaried with Fluctuating Workweek
BELO Plan
Piece Rate
Overtime Earnings for Pieceworkers—Method A
Overtime Earnings for Pieceworkers—Method B
Special Incentive Plans
Commissions
Nondiscretionary Bonuses
Profit-Sharing Plans
KEY TERMS
ANSWERS TO SELF-STUDY QUIZZES
KEY POINTS SUMMARY
Matching Quiz (p. 2–33)
Questions for Review (p. 2–33)
1. The two bases of coverage provided by the FLSA are enterprise coverage and in-
dividual employee coverage. Under enterprise coverage, all the employees of an
2–4 Payroll Accounting
5. A tipped employee engages in an occupation in which tips of more than $30 a
6. State employees working in the area of public safety may accumulate compensatory
time off up to 480 hours. (The 480-hour limit represents 320 hours of overtime
7. An employee would be paid for compensatory time off in the following two cases:
8. The following employees are exempt from some of the requirements of the FLSA:
9. The types of exempt white-collar employees are executives, administrators, profes-
10. To be classified as a highly compensated employee, he or she must:
11. The following conditions must be met:
Chapter 2 2–5
12. The principal activities of employees are those they must perform and include any
13. The time spent by employees in traveling to and from work counts as time worked
only if contract, custom, or practice so requires. In some instances, however, travel
14. “Engaged to wait” is considered working time. An example would be workers
15. Nonexempt employees must be paid for all hours worked, even those outside the
16. The time spent by employees in attending lectures or training sessions does not
count as working time when all of the following conditions are met:
17. Preliminary and postliminary activities would be counted as time worked if required
by custom or contract. In addition, if these activities are integral or indispensable to
19. The Wage and Hour Division allows employers to round off employees’ work time to
21. To calculate the overtime hourly rate for employees who are paid biweekly, divide
2–6 Payroll Accounting
23. In the case of a salaried employee with fluctuating workweeks, overtime pay is
a fixed hourly rate of pay, and then divide this in half to get the fixed extra half-rate.
24. Commissions are considered to be payments for hours worked and must be
Questions for Discussion (p. 2–34)
1. The FLSA requires overtime pay for hours physically worked over 40 in a
3. Under the Fair Labor Standards Act, if the correct amount of overtime compensation
4. In a case similar to the one described (69 LA 573), it was noted that the employer
was more diligent in trying to correct paycheck errors that involved more than $30.
5. First of all, the company pays Banta at two different wage rates based on the hours
Chapter 2 2–7
Problem Sets (p. 2–35)
The principles and practices of payroll accounting discussed in Chapter 2 are applied in
the Problem Sets as shown below.
Principle or Practice Problem Set No. (A and B)
1. Paying less than the minimum wage
(exception to the FLSA) 2–1
2. Computing the tip credit 2–2, 2–5
3. Computing gross earnings 2–3
4. Computing regular earnings, overtime
earnings, and total gross earnings 2–4 through 2–22
5. Computing salary—exempt employee 2–6
6. Reading time cards to determine hours worked 2–9, 2–10
2–11 (continental
system)
7. 4/40 workweek 2–11
8. Converting monthly and annual salary
rates to hourly rates 2–14, 2–15
9. Using the decimal system for “docking” 2–10
10. Piece-rate systems 2–18, 2–19
11. Commissions 2–20, 2–21
12. Bonuses 2–22
Solutions—Problem Set A
2–8 Payroll Accounting
2–3A. (a)
2–4A. (a)
Regular Overtime Overtime Total Gross
Employee Earnings Rate Earnings Earnings
Chapter 2 2–9
2–9A. (a) Hours worked each day:
Monday …………………………………………….. 8 hours
Tuesday ……………………………………………. 10 hours
2–10A. (a) Hours worked each day:
2–11A. (a) Daily total hours:
2–10 Payroll Accounting
2–14A. Yearly earnings: $2,875 × 12 = $34,500
2–15A. Yearly earnings: $3,575 × 12 = $42,900
Weekly earnings: $42,900 ÷ 52 = $825.00
Chapter 2 2–11
2–12 Payroll Accounting
Solutions—Problem Set B
2–3B. (a)
Employee Gross Earnings
2–4B. (a)
Regular Overtime Overtime Total Gross
Employee Earnings Rate Earnings Earnings
Chapter 2 2–13
2–9B. (a) Hours worked each day:
2–10B. (a) Hours worked each day:
2–14 Payroll Accounting
2–11B. (a) Daily total hours:
2–13B. $725 ÷ 40 = $18.13 hourly rate
2–14B. Yearly earnings: $3,875 × 12 = $46,500
Chapter 2 2–15
2–15B. Yearly earnings: $3,650 × 12 = $43,800
(b) Commission:
2–16 Payroll Accounting
2–21B. (a) Weekly base salary …………………………………………………….. $400.00
Continuing Payroll Problems (p. 2–50)
See the completed payroll registers on pages CPP–1 through CPP–6.
Case Problems (p. 2–52)
Case 2–1
Some potential solutions that Delgado should consider are:
1. Limit vacation accruals to a maximum, such as two or three weeks. This move
Case 2–2
John should be made aware of the fact that the FLSA requires overtime pay for hours