EMPLOYER TAX BRIEF
Practice “situational awareness” when it comes to employees’ wages
“Situational awareness” is a term used in the military and elsewhere to describe an individual’s ability to stay fully alert of all potential threats and resources in his or her surroundings. It’s a good skill for employers to use when determining and tracking employee wage rates. After all, the term “wages” includes more than just an employee’s allotted cash pay for work.
Minimum wage purposes
There are two important reasons for determining exactly what employees’ hourly wage rates are on a regular basis.
First, the exact wage rate, not the employee’s “book” wage rate, determines whether you’re meeting the statutory minimum wage. For example, let’s say an organization sets employees’ hourly rates at levels at or above the statutory minimum. But then it requires employees to live in employer-provided housing and deducts from their pay excessive rental charges. The organization may find it has unlawfully reduced the employees’ wages to levels below the minimum wage in violation of the Fair Labor Standards Act.
On the other hand, an employer may set employees’ wage rates at below the statutory minimum wage rates but, because the employees make substantial amounts in tips, the employer may still comply with the minimum wage guarantee.
The second major reason for determining each employee’s exact wage rate is to determine the employee’s “regular rate of pay” so you know what overtime premium must be paid. For instance, an employer may pay employees a set wage rate of $8 an hour, but this doesn’t necessarily mean that the employee’s “time-and-a-half” overtime premium is $12 an hour. An
In other cases, an employer maintains an employee “thrift” plan through which it matches employee contributions to a savings plan. If properly structured, the employer’s extra contributions to the employee’s thrift plan won’t have to be included in the employee’s “regular rate of pay” for overtime purposes. The employer, however, cannot claim these excess payments as a credit toward what it owes the employee for working overtime.
Certain exclusions apply
Specifically excluded from wages are payments such as gifts, paid leave, reimbursed expenses, discretionary bonuses, talent fees, contributions to employee pension and health plans, and certain premium payments. These amounts can complicate the ongoing determination of wages. Contact us for further assistance in maintaining your organization’s situational awareness of wages and other payroll matters, including the tax impact.