© 2024 Seyfarth Shaw LLP | www.seyfarth.com Classification Guidebook | 17 Determining Back Wage Payments (if Any) A. Steps for Calculating and Making Back Wage Payments, if Owed to a Reclassified Employee If the employer determines that a reclassified employee should receive back overtime wages for a period during which the employee had been treated as an exempt employee, then it might consider the following steps in calculating and making the payments. Note, however, that back wage payment processes are inherently thorny and present myriad technical and legal angles to account for. Employers should seriously consider engaging legal counsel to assist. 1. Determine the period for which back wage payments should be made. This will turn on the employee’s unique circumstances, employer’s goals and risk tolerance, and relevant statutes of limitations (which under the FLSA is two years for a non-willful violation, though longer periods apply under some state laws). 2. Determine the potential sources through which the overtime hours worked by the employee may be estimated, and decide which of the sources should be used, alone or in combination with one another, to approximate the overtime hours the employee may have worked. For a list of possible sources, click Possible Sources or turn to page 18. 3. Present the employee with an estimate of past overtime hours. In doing so, remain receptive to hearing a different hours estimate from the employee if the employee disagrees with the employer’s estimate. 4. Reach an agreement (through negotiation, if need be) with the employee as to the number of overtime hours for which back wage payments will be made. 5. Decide whether to calculate back wages using a time and one-half or half-time computation. For sample calculations using each method, as well as a list of factors to consider in deciding which method to use, click Sample Calculations or turn to page 18. 6. Explain to the employee the amount of back wages the employer has determined should be paid and the method used to calculate that amount. 7. Present the employee with a letter summarizing the parties’ understanding regarding the hours and method of calculating overtime pay and enclosing a back pay acknowledgment form for the employee to consider and, if acceptable, sign and return. For a suggested letter and form, click Letter and Acknowledgment or turn to page 50. 8. Deliver the back wage payment to the employee, minus any required withholdings and applicable deductions (e.g., taxes, contributions to a stock purchase plan, contributions to a 401K plan or other retirement account). Deductions should not be made for health insurance benefits or any other benefits where the amount of the deduction is the same for each pay period irrespective of the amount of earnings.
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