Recently, we have seen the U.S. Department of Labor (DOL) increase its investigations of dealerships’ payrolls. The DOL’s focus has been the compliance with Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements.
The DOL’s investigations have particularly focused on dealerships that utilize a flat-rate compensation system. This compensation system is common in the auto industry, whereby an individual’s wages are determined by calculating a predetermined number of hours to complete a specific job multiplied by a standard hourly flat-rate per hour. Dealerships that use a flat-rate system should consider a self-audit, since the predetermined hours to complete a specific job and the actual number of hours worked may differ due to the efficiency of each individual employee.
A key component in the self-audit of a flat-rate system is the determination of an employee’s ‘regular rate of pay.’ This ‘regular rate of pay’ is calculated by dividing an employee’s total compensation for a particular work week by the total number of hours that he or she actually worked during that week. The rate is then compared to the state’s minimum wage rate and evaluated for overtime compensation. The ‘regular rate of pay’ must exceed one and one-half times the applicable minimum wage for every hour worked in a work week in which overtime hours are worked.
However, there are exceptions to the overtime requirements for certain employees who meet specific qualifications, such as:
- Mechanics and technicians who are involved in the servicing, reconditioning, and body shop repairs directly affecting the “safety of operations” of vehicles;
- Parts personnel who are involved in the ordering, stocking and selling of parts and accessories;
- Commissioned sales persons whose weekly draws (if applicable) exceed the minimum wage requirements; and
- Salaried employees such as executives or bona fide administrative employees.
To determine if your dealership is in compliance with the FLSA, you should complete a self-audit for your employees. Please click here to download an example copy of a Schneider Downs’ self-audit worksheet.
For more information, please contact Steven Barber at 412-697-5463 or Henry Szymanski at 412-697-5335.
Schneider Downs provides accounting, tax, wealth management, technology and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.