In December 2015, the University proactively contacted the Department of Labor (DOL) for assistance in resolving a Fair Labor Standards Act (FLSA) compliance matter after discovering an error in how its legacy payroll systems were calculating overtime pay for certain non-exempt employees at campuses and medical centers across the system. These system errors resulted in both small under- and over-payment for certain employees, with the vast majority of underpayments amounting to less than $5 per paycheck.
The University identified these system errors in connection with the implementation of UCPATH, a project to replace its 35-year-old payroll systems and processes with a new, single payroll system for all of UC’s 190,000 employees. Although the effect on employee pay is quite small in the majority of situations, the University concluded that it is appropriate to disclose the calculation errors to the DOL and University personnel.
The University is working with the DOL to address up to three years of past underpayments and potential future underpayments until UCPATH is implemented and the new payroll system is in place. Affected employees will be notified once the University has worked out a resolution plan with the DOL.
UC has also taken steps to correct certain errors within the existing payroll systems as it continues to move toward fully implementing UCPATH, which will deploy software that calculates pay in accordance with federal standards and minimizes the risk that these types of issues will occur in the future.
1. Why did UC contact the Department of Labor about overtime pay?
The University has been working on a project to replace its 35-year-old payroll systems and processes with a new, single payroll system for all of UC’s 190,000 employees. This project is known as UCPATH. As UC has moved to implement UCPATH, it identified an issue with how UC calculates overtime pay for certain employees. While the University has historically been more generous in some overtime pay practices than what is required by law, UC discovered some areas in the old payroll systems that are not consistent with federal requirements. The University contacted the federal Department of Labor (DOL) for assistance in resolving the error.
2. What is the nature of the error?
Employees who are eligible for overtime pay under the Fair Labor Standards Act (FLSA) receive premium pay for overtime work. That premium pay is based not only on the employee’s hourly rate, but also includes other types of compensation like shift differentials or stipends. The University has not included certain types of these other categories of pay in the overtime pay rate. UC also has been calculating the overtime pay rate for each pay period instead of for each work week. It is not unusual to uncover system errors like this when undertaking a project like UCPATH. These system errors have resulted in both small under- and over-payment for certain employees. The vast majority of underpayments caused by these errors amount to less than $5 per paycheck, with most affected employees underpaid less than $1 per paycheck.
3. What is UC doing to correct this error and compensate affected employees?
UC is correcting the current payroll system to make sure that those types of pay (such as incentive awards, shift differential, and other additional types of pay) that should be incorporated in the overtime rate are consistently being included. These changes will be made effective with the December 16, 2015 paychecks for biweekly employees. The practice of calculating overtime pay on a pay period basis (instead of on a work week basis), however, cannot be fixed until UCPATH is implemented. To compensate affected employees, UC is working with the Department of Labor to address up to three years of past underpayments and potential future underpayments until UCPATH is implemented.
4. Which employees are affected and how many?
Non-exempt employees who are eligible for and have worked overtime in the last three years could be affected. The errors primarily involve those employees who work overtime and earn shift differential or other additional pay. Less than 20% of UC’s workforce might have been affected, and the vast majority of underpayments caused by these errors amount to less than $5 per paycheck. In fact, most affected employees were underpaid less than $1 per paycheck.
5. How much does UC owe employees, individually and combined?
UC will not have this specific information available until after the resolution process with the Department of Labor has been completed. We know that only a very small number of employees might be owed more than $200, and it would be generally those employees who work large amounts of overtime and receive differential pays or participate in the incentive compensation plan at the medical centers. The University will not seek reimbursement from employees who may have been overpaid due to these errors.
6. How do I know if I’m an affected UC employee?
UC will notify affected employees once it has worked out a resolution plan with the Department of Labor.
7. How long will the Department of Labor process take?
The timing of the DOL process and decision is uncertain at this time.
8. How will UC prevent future problems like this from happening?
UCPATH deploys software that calculates pay in accordance with federal standards. The University will be using this program, after all the campuses have launched, to calculate pay consistent with legal requirements and other organizations’ practices to minimize the risk that these types of issues will occur in the future.
9. If employees have questions that are not addressed by these FAQs, where should they be directed?
Employees should be directed to their campus’/location’s Human Resources if they have questions or concerns.