One of the challenges of computing overtime pay is getting the base rate right, from which time-and-a-half is calculated.
This isn’t always straightforward. In a recent case in New Mexico, for example, city employees got extra money for any sick days or vacation days that they didn’t take. These were termed “buybacks.”
The employees claimed the city was underpaying their overtime because it didn’t include the value of the buybacks in their base pay rate – or “regular rate,” as the Fair Labor Standards Act calls it.
The employees won a split decision.
The federal courts eventually ruled that the sick-day buybacks were part of the employees’ base rate, and the city owed them additional OT as a result.
Here’s the logic the court used: Paying employees for sick days they didn’t use was like giving them attendance bonuses, and DOL considers these bonuses part of the OT base rate.
But the vacation buybacks were different, the courts said, and weren’t part of base pay. Why?
Vacation pay isn’t compensation for working, whereas attendance bonuses are, the court said.
Subscribe to Leadership Blog
Get the latest research on workplace learning with weekly posts delivered to your inbox