My granddaughter recently lost a baby tooth in the ‘usual way.’ One morning, she felt the tooth begin to move the slightest bit. She wiggled it back and forth throughout the day and by dinner…Voile! Only one day later, she lost two more courtesy of her dentist to make room for the incoming ‘permanent’ ones. The Tooth Fairy kept the commitment of retrieving the lost teeth from under her pillow in a timely fashion – in this case staying up late on two consecutive nights – and rewarded her for pain and suffering with a selfie stick. (Wow, times have changed!)
This made me wonder, does the Tooth Fairy earn overtime for work performed in excess of a statutory number of ceiling hours or is that position salaried? (I’ve had a long term and continuing relationship with the Tooth Fairy, so I want to proceed carefully.) The question of overtime relates to the Fair Labor Standards Act (FLSA). The FLSA provides for a federal minimum wage, a standard 40-hour workweek, and pay at time-and-a-half rate for all overtime hours. The Act also includes several exemptions under which certain employees are not entitled to overtime pay. Currently to meet most exemptions, in addition to meeting a duties test, an employee must be paid on a salary basis at least $455 per week ($23,600 annually). There is a belief that payment of a salary is the only requirement to avoid overtime pay obligations. This is not correct. Also, a new regulation will more than double this minimum salary threshold later this year, but these are topics for tomorrow!
If the Tooth Fairy is not FLSA-exempt, there is a federal entitlement for a time-and-a-half rate for any hours worked in excess of 40 hours. Conversely, if the Tooth Fairy is FLSA-exempt, hours worked in excess of 40 hours weekly are considered Uncompensated Overtime (UCOT).
I’ve always had nagging concerns about UCOT – that it’s somehow a ‘bad’ thing – so I researched UCOT. The Regulation requires the solicitation provision at FAR 52.237-10 (Identification of Uncompensated Overtime) in requirements for technical or professional services which will be acquired on an hourly basis:
Uncompensated overtime means the hours worked without additional compensation in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act. Compensated personal absences such as holidays, vacations, and sick leave shall be included in the normal work week for purposes of computing uncompensated overtime hours.
FAR goes on to provide this example:
Uncompensated overtime rate is the rate that results from multiplying the hourly rate for a 40-hour work week by 40, and then dividing by the proposed hours per week. For example, 45 hours proposed on a 40-hour work week basis at $20 per hour would be converted to an uncompensated overtime rate of $17.78 per hour ($20.00 × 40 divided by 45 = $17.78)
The key to both the provision and the example might be the term ‘proposal’. If an offeror proposes UCOT, then it is part of its technical and pricing plan that should be evaluated during cost realism. What if a contractor does not propose UCOT yet incurs UCOT? Unforeseen situations requiring additional labor hours or surge efforts are not uncommon in professional service industries. In this situation, can the contractor invoice for these uncompensated hours? Invoicing – always a significant issue – becomes more important when fee is linked to achieving a level of effort. Can the contractor profit on UCOT hours?
UCOT is not illegal. How a contractor motivates its employees, both FLSA and FLSA-exempt, to satisfy employee and customer seems a matter for industry not Government. If you are pondering the loss of revenue on the part of the employee, consider that there may be other opportunities and means to compensate employees, such as additional benefits, compensatory time, or bonuses. As in so many other federal procurement matters, competition will affect retention rates of those who propose intentionally to overwork their employees. UCOT is discussed as a subtopic in Centre’s Federal Contract Basics Course.
As for the Tooth Fairy, there are an increasing number of ‘clients’ for whom Tooth Fairy must provide services. I know from experience that each ‘client’ has at least one parent and probably others (grandparents, for example!) standing by to ensure success. Tooth Fairy and I aren’t so close these days that we can discuss FLSA status, but I’d like to think with all those hours and all those satisfied ‘clients’ Tooth Fairy has earned many overtime hours as a non-exempt worker.
And Tooth Fairy, what’s a selfie stick anyhow?
About the Author:
Richard E. Zimmerman has more than 25 years of experience as a contracts professional both in Government and the private sector. His excellent background in FAR, Agency supplements, and their application over the procurement life cycle make him a critical resource for PMs, prime contractors, and subcontractors.