The new “grand bargain” legislation Governor Charlie Baker signed into law last week gradually phases out the requirement that Massachusetts retailers pay time-and-a-half for work on Sundays or certain holidays.  However, this phase-out has a hidden complication: payment of less than time-and-a-half for work on Sunday or holidays is not credited towards overtime for work over 40 hours in a week, and therefore must be included in the regular rate.  This means retailers may be required to account for extra premium pay for employees who work on Sundays or holidays.

The “Grand Bargain” Legislation

On June 28, 2018, Gov. Baker signed a bill that increases the minimum wage in Massachusetts over a five-year period and provides paid family and medical leave for employees.¹ The law also reduces the Massachusetts Blue Laws’ time-and-a-half premium pay requirement for retailers by .1% per year – that is, the 1.5 permium reduces to 1.4 times the employee’s base hourly rate in 2019, 1.3 times in 2020, and so on, with the Sunday / holiday premium being entirely eliminated in 2023.

Calculating Overtime Under State and Federal Law

Under both the federal Fair Labor Standards Act (FLSA) and state overtime law, an employer must pay overtime at one-and-a-half times the person’s “regular rate” for all hours worked over 40 in a week.  In general, the “regular rate” used to calculate overtime is the sum of any non-overtime amounts paid to the employee in the week, divided by hours worked, which is then applied to hours worked after 40 hours in the week. 

There are several exceptions to this regular rate calculation.  In particular, an employer can exclude premiums paid for work done on Sundays or holidays, and can credit that premium pay against any overtime owed for work over 40 hours in a week – but only if the premium pay is “not less than one and one-half times” the employee’s normal base hourly rate.  If the Sunday or holiday premium pay is less than one and one-half times the normal hourly rate, then it has to be included in the regular rate calculation, and cannot be credited towards overtime owed for work over 40 hours in a week. 

Therefore, a retailer in Massachusetts that pays less than time-and-a-half for work on a Sunday or holiday could end up owing an extra overtime payment, in addition to the Sunday/holiday premium.

An Example (Danger: Math Ahead)

For example, assume a retail employee normally makes $12.00 per hour in 2019.  The employee works 8 hours Sunday through Friday, for a total of 48 hours.  Under the amended Blue Laws, the employee is owed $134.40 (1.4 x $12 x 8) for Sunday and $96 ($12 x 8) each day for Monday – Friday.  However, the extra pay for Sunday work would not be credited against the overtime owed for working over 40 hours.  Instead, the premium pay would have to be included in the employee’s regular rate, and the employee would need to be paid overtime above what the employer already paid.  This is calculated by adding up the amount paid to the employee:

$134.40 + $96 + $96 + $96 + $96 + $96 = $614.40

Dividing that amount by hours worked yields the regular rate:

$614.40 ÷ 48 = $12.80

And multiplying that by overtime hours and .5 (to get the “and a half” overtime amount owed) equals:

$12.80 x 8 x .5 = $51.20

Adding $51.20 to $614.40 means the employee is owed $665.60 in total for that week.

If the employer paid the full time-and-a-half for Sunday work, however, the employee would actually be owed less.  The time-and-a-half paid on Sunday would be credited against the overtime owed, so the retailer would owe $144 for Sunday and $96 for Monday through Friday, or $624.00 total. 

Note that this calculation applies only when a person works more than 40 hours in the week.  Because there is no overtime pay required if the employee does not work more than 40 hours in a week, the regular rate calculation does not come into play.

Conclusion

The first reduced Sunday/holiday premium rate goes into effect January 1, 2019.  Retail employers should evaluate payroll practices to ensure that overtime calculations comply with state and federal overtime laws.