February 2014 – Economic Thinking In Action

Analyzing minimum salary guarantee plus extras 29 C.F.R §541.604(a)

Ok, so you have a group of exempt employees that receive a set salary amount and additional compensation each week. How do you analyze this type of OT exemption?

29 C.F.R §541.604 provides some guidance on the issues. For instance, 29 C.F.R §541.604 provides a number of examples where employees receiving this type of salary compensation would still be correctly classified as exempt workers. For instance in 29 C.F.R §541.604(a), an exempt employee guaranteed at least $455 each week would still be correctly classified if they received additional compensation of 1% sales commission or profits. The employees, according to 29 C.F.R §541.604 the employees could also receive additional compensation based on the hours worked above a normal week and remain correctly classified.

Paying exempt workers a varying amount each paycheck – Minimum guarantee plus extras 29 C.F.R §541.604(b)

Many of us think of an FLSA OT exempt salaried worker as receiving the same amount of pay each and every week. However some employers have their OT exempt workers pay tied to productivity measures such as the amount of hours worked. Assuming all the other conditions are met, 29 C.F.R §541.604, indicates that these types of pay arrangements can be acceptable and do not violate the salary basis of the FLSA. 29 C.F.R §541.604(b) in particular, provides some guidance on the issue.

The regulation indicates that the employee’s earnings can be computed on a varying basis ( hourly, daily, shift etc.) if the employment arrangement includes a guaranteed minimum amount and a reasonable relationship exist between the guaranteed minimum amount and the amount actually earned by the employee. 29 C.F.R §541.604(b) provides an example of a reasonable relationship exist between the guaranteed minimum amount and the amount actually earned by the employee. (Some employers provided the stated guarantee amount in the employees pay statements or other work documents)

The example in 29 C.F.R §541.604(b) suggest that a salaried employee who is receiving varying pay, but who has a stated guaranteed salary of at least 2/3 of the employee’s normal pay could be correctly classified as OT exempt. In the example, the employee has a stated guaranteed amount of $500 in a given week regardless of how much work is performed in the week. Further, the employee typically works four to five days (shifts) a week.

The regulation suggest that if the employee is paid at least $150 a shift then they are correctly classified according to the salary basis requirement. Using the assumed amount of $150 a shift, results in a ‘reasonable stated salary guarantee to pay relationship’ floor of 2/3. That is, the stated salary guarantee divided by the actual salary is 2/3. In this example, $500/(5 shifts)x($150) = $500/$750 = .66666 = .67 or 2/3.

Keystone XL Pipeline gets a powerful new supporter and loses a powerful adversary all in one day.

The Former head of the US Geological Survey (USGS), now editor-in-chief ofScience magazine (Marcia McNutt), looked at the economics and re-evaluated her position on the Keystone XL project. She now endorses building a pipeline to transport crude oil from Canada’s oil sands to the United States.

Listen to the full NPR interview with Ms. McNutt.

Marcia McNutt discusses in the interview with NPR, that if the Keystone XL pipeline were not built, the oil would be carried by rail and road tankers, which would be more environmentally damaging.

Calculating overtime for non-exempt day rate workers according to 29 C.F.R §778.112

Calculating overtime for non-exempt day rate workers is covered under 29 C.F.R §778.112. The regulation can also be used ‘in reverse’ to audit or analyze the payment system of an given employer. Several resources and examples of calculating for non-exempt day rate workers is covered under 29 C.F.R §778.112 are discussed below.

1 The actual regulation. 29 C.F.R §778.112 Day rates and job rates.

http://www.gpo.gov/fdsys/pkg/CFR-1999-title29-vol3/pdf/CFR-1999-title29-vol3-sec778-112.pdf

2. Example of how to calculate overtime for a day rate worker from the Fisher Phillips website:

http://wage-hour.net/?tag=/29+C.F.R.+778.112

Note how the regular rate changes in each week. The regular rate depends on the actual hours worked. Not a set number of hours like 40.

3. Federal court cases involving day rates (hybrid day rates and partial day deductions) are discussed

In the first case the court found that the hybrid day rate and weekend hourly pay system violated §778.112. In the second case, the court found that the employers partial day deductions meant that the defendant did not have a valid day rate plan as laid out in §778.112.

http://flsaovertimelaw.com/tag/29-c-f-r-%C2%A7-778-112/

4. What’s new on 29 c.f.r §778.112 according to Google:

https://www.google.com/search?q=29+c.f.r+%C2%A7778.112&rlz=1C1CHFX_enUS479US479&oq=29+c.f.r+%C2%A7778.112&aqs=chrome..69i57.8731j0j7&sourceid=chrome&espv=210&es_sm=93&ie=UTF-8#q=29+c.f.r+%C2%A7778.112&start=0

Why the economic doom and gloom? St. Louis Fed puts the probability of another recession at near zero percent!

Actually a number of studies on consumer sentiment are painting a similar picture of optimism for the economy in the coming months. See for example the Roanke University study.

Details on the Recession graph and data calculations from FRED:

Notes:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

For additional details, including an analysis of the performance of this model for dating business cycles in real time, see:
Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008, 26, 42-49.
(http://pages.uoregon.edu/jpiger/cp_realtime_2_020907.pdf)

For additional details as to why this data revises, see FAQ 3 athttp://pages.uoregon.edu/jpiger/us_recession_probs.htm.

A longer look at the Fed’s study of job search methods: the major findings

James D. Eubanks and David G. Wiczer of the St. Louis recently authored a study in the January 2014 ‘The Regional Economist’ St. Louis newsletter that looked at the impact different types of job search methods,such as networking and cold calling, have on the likelihood of obtaining employment. The study is based on straightforward tabulations of data obtained from the U.S. BLS CPS data. The authors performed multiple tabulations of the the job search type variable found in this data and then reported findings from various years and cross sections of the data.

Some of the results are surprising and a little counter-intuitive. Some of the ‘counter-intutiveness’ may go away in a deeper analysis that controls for multiple factors.

Here are the key findings

Job seekers use more search methods during times of recession than during economic expansion
The different job search methods are all about equal in terms of success
Many job seekers use multiple methods, some are more likely to be used together than others

Another economic bright spot: People can pay their mortgages as delinquency data shows a drop in late payments

Data released by the credit giant TransUnion indicates that :

The mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgages) dropped below 4% for the first time since 2008, ending Q4 2013 at 3.85%.

The mortgage delinquency rate declined for the eighth consecutive quarter from 4.09% in Q3 2013 while dropping more than 24% from one year earlier (5.08% in Q4 2012).

The study also found:

Florida, NJ continued to have a higher mortgage delinquency rate at 8.18% and 7.60%
Nevada saw the rate of delinquencies fall by over a third (9.98% to 6.52%)

East Austin update: One of the last old line businesses leaving East Austin as the area continues to develop economically and change culturally

Austin American Statesman reports that, Arnold Oil is moving out of East Austin and will move into a industrial area near the airport.

Co-owner Jim Arnold said the company needs more space and that what started as a two-man operation has outgrown Central East Austin, and vice versa. “I said there will come a time when this business will no longer have a place in East Austin, and that time has come,” Arnold said Tuesday. “We need to expand … and this doesn’t belong in East Austin on Friday nights and Saturday nights. It’s a changed place.”

The area east of I-35 in Austin, continues to change economically and culturally. Since the 1990 the area has renovated older housing stock, added housing and new businesses. A study by the UT-Austin LBJ School done in 2007 documents some of these changes. Recent activity has only continued the trends identified in the study.

Here are a few of the highlights:

There is a significant demographic change in the racial and ethnic composition of East Austin
There is overall increase in median family income and decrease in poverty levels in East Austin
East Austin’s population is becoming younger and better educated.
There is a substantial increase in housing values

NY Fed small business credit survey shows that small businesses are upbeat about 2014 but are concerned about lumpy cash flow streams

The New York Fed surveys over 1,500 small firms twice a year about their financing and credit needs. Responses to the Small Business Credit. (It would be nice for the other Fed banks to do a similar study, hint, hint)

In the Q4 2013 survey, a weighted to be a statistically representative sample of firms in New York, New Jersey, Connecticut, and Pennsylvania reported on their business performance and credit
experiences in the first half of 2013 and their outlook for the first half of 2014.

Here are the highlights.

Firm outlook is positive for Q1 and Q2 2014: more than 50% expect rev. to increase and 30% expect to add employees
Firms report small credit needs and high search costs: most sought loans <$100k; more than 26 hours spent on the search
Managing uneven cash flow dominates firm concerns
More experience and success correlated with more favorable credit experience

People are regaining employment faster; Unemployment duration continues to fall

While we’re not back at the levels before the great recession unemployment duration has definitely fallen in the last few months.

As the graph shows unemployment duration has fallen from about 25 weeks to about 16 weeks for the average person. Of course there are certain jobs where the unemployment duration has fallen more than others.

In any event this graph is a good indication of how unemployment duration has improved in recent months.