DOL Issues Opinion Letters Regarding Pay Calculations for Teleworkers, In-Home Caregivers

On the last day of 2020, the Wage and Hour Division of the U.S. Department of Labor (DOL) ushered out the year with two new Opinion Letters. These may be the final two Opinion Letters of the Trump Administration and perhaps the last two for a while, depending on whether the Biden Administration continues the practice, reimplemented during the current administration, or abandons it, perhaps in favor of the informal administrator interpretation letters issued during the Obama Administration. That remains to be seen but, for now, here is a quick summary of these latest Opinion Letters:


In FLSA2020-19, the DOL addressed an issue that has arisen during the Covid-19 pandemic, namely, what time qualifies as compensable work time for an employee who works in part at home (“teleworks”) and in part at the employer’s regular worksite (e.g. “the office”), particularly when the employee also attends to personal business at times during the day. In other words, how does the “continuous workday” rule come into play with remote employees? In setting forth its analysis, the DOL reiterated that compensable worktime is only that time spent “primarily for the benefit of the employer,” and if the employee is completely relieved of duties for a sufficient period of time such that it may effectively be spent for her own purposes, this latter time is not compensable worktime. Moreover, the DOL reminds us, normal commute time – whether to or from the workplace – is not compensable worktime.

In the Opinion Letter, the employer provides hypothetical scenarios, premised generally on an employee who normally works from 8:00 a.m. to 4:30 p.m. and has a one-hour commute but is now teleworking in part (presumably due to the pandemic). The employer then asks whether the employee’s travel time would be compensable, first under the following scenarios:

  1. The employee leaves the office at 1:00, drives to a parent-teacher conference (PTC), attends the PTC for 45 minutes, then drives home and works at home the remainder of the day.
  2. Same facts as Scenario 1, but the employee attends to personal business for an hour after arriving home and before resuming work.
  3. Same facts as Scenario 1, but the employee’s personal time is extended to two hours.
  4. Same facts as Scenario 1, but after the PTC ends, the employee attends to personal business for an hour, drives home, attends to more personal business for an hour, then resumes work.

The DOL concluded that under all of these variations, only the time spent working at the office or working at home is compensable. The travel time is normal commute time, and the personal time is not primarily for the benefit of the employer and is long enough to effectively be spent for the employee’s own purposes. Moreover, this is NOT the “worksite-to-worksite” travel that is considered compensable under the regulations. The employer is not requiring that the employee travel as part of her work duties; rather, she is traveling of her own volition and for her own personal purposes. “When an employee arranges for her workday to be divided into a block worked at home and a block worked at the office, separated by a block reserved by the employee to use for her own purposes, the reserved time is not compensable, even if the employee uses some of that time to travel between home and the office,” notes the DOL (emphasis added).

In the second scenario, the employee has a doctor’s appointment from 8:30 to 9:15. With permission, she works for an hour at home before the appointment but, after working from 5:00 a.m. to 6:00 a.m., she attends to personal affairs for two hours before leaving for the appointment. Following the appointment, she travels directly to the office, where she works until the end of the normal workday. She then drives directly home, where she undertakes no more work for that day.

Just as with the first scenario, the DOL concludes that only the time spent actually working, either at home or at the office, is compensable worktime. The employer did not require the employee to work from 5:00 a.m. to 6:00 a.m. – and that is important, because the outcome may have been different if the employer mandated when the work had to be undertaken (a scenario the DOL expressly notes it is not considering in this Opinion Letter). Rather, the employee chose to work at this time before undertaking personal tasks. As one court noted, if it were otherwise, an employee could get up and perform work in the middle of the night, then go back to sleep for several hours before arising again to leave for the office, and “she would be entitled to compensation for the time she spent unconscious….It simply cannot be the case that an employee is empowered unilaterally to convert her commute into compensable time merely by deciding to perform her daily routine in a particular manner.” Garcia v. Crossmark, Inc., 157 F. Supp.3d 1046 (D.N.M. 2015) (emphasis added) (quoting 29 C.F.R. § 785.16).


In FLSA2020-20, another pandemic-related Opinion Letter (albeit one with a narrower audience), the employees at issue are in-home or live-in caregivers who typically work shifts of 24 hours or more (commonly, 5-day/120-hour shifts). Because of the difficulty of tracking hours spent by the employees performing work-related tasks versus time that can be used effectively for their own purposes, the employer “pre-calculates,” based on a presumed 120-hour workweek, that all hours not reported for sleeping or bona fide meal periods (up to 8 hours per day) are considered compensable. For these hours, it pays the employees a half-time premium for all hours over 40 per week or 8 hours per day, and then pays an additional amount at 1.5 times the standard hourly rate for any hours worked in excess of the presumption (due, for example, to shortened sleep periods or meal breaks). The employer wants to know whether the overtime payments are excludable from the regular rate and whether they may be credited toward any overtime owed.

Yes to both, says the DOL. Provided there is an agreement or understanding (written or unwritten) between the employer and employee, 29 U.S.C. § 207(e)(5) “permits an employer to exclude extra compensation provided by a premium rate paid for certain hours worked in any day or workweek because such hours are in excess of 8 in a workday or 40 in a workweek. Section 207(h) further permits an employer to credit any payments excludable under Section [207(e)(5)] towards overtime pay owed under the FLSA” (citing 29 C.F.R. 778.202(a)).

If you have any questions about these Opinion Letters or any other wage and hour issue, please consult the Jackson Lewis attorney(s) with whom you regularly work.

Mandatory Gratuities Are Not “Tips” But May Qualify as Commissions Under the FLSA, Fourth Circuit Holds

Agreeing with the district court, the Court of Appeals for the Fourth Circuit has concluded that the mandatory service charges imposed by a restaurant on dining parties of six or more were not “tips” under the FLSA. However, the Court of Appeals reversed and remanded the trial court’s determination that the FLSA’s “commissioned salesperson” overtime exemption applied, as well as the trial court’s determination that the tip pool in question was valid.  Tom v. Hospitality Ventures, LLC, 2020 U.S. App. LEXIS 37074 (4th Cir. Nov. 24, 2020).


Ãn Asian Cuisine (“Ãn”) was a sushi restaurant formerly operating in Cary, North Carolina. Ãn characterized its employees as either “front-of-the-house” or “back-of-the-house” staff. Servers and Server Assistants, who fell in the “front-of-the-house” category, received compensation from four sources: (1) an hourly wage of at least $2.13 for the first forty hours of the week and at least $5.76 for all additional hours; (2) cash tips; (3) credit card tips and (4) automatic gratuities. Ãn generally applied an automatic gratuity of 20% to the bill for parties of six or more people.

In July 2014, Ãn implemented a tip pool for its evening shifts. That tip pool included Captains, Servers, Bartenders, Sushi Chefs, and Server Assistants/Runners/Expediters. In addition, the Hostess received 100% of all tips received from to-go orders. Under this system, many of the Servers were paid so well that they surpassed the income of the restaurant’s managers. Plaintiffs Wai Man Tom and Brandon Kelly, who held the position of Captain (the most experienced servers), filed suit, claiming that their employer operated an unlawful tip pool because it included individuals who did not customarily and regularly receive tips. Moreover, they argued, the automatic gratuities were a form of tips. Therefore, because the tip pool was invalid, the restaurant was not entitled to take a tip credit and, without including the tips or the automatic gratuities, failed to satisfy its minimum wage and overtime obligations under the FLSA. Ãn countered that the automatic gratuities were not tips but instead were commissions under 29 U.S.C. § 207(i), entitling it to invoke the “commissioned salesperson” overtime exemption. Regardless, added the restaurant, its tip pool nevertheless was valid during those weeks where the 207(i) exemption was inapplicable. The district court agreed with the defendant and entered summary judgment in its favor.

The Circuit Court Decision

On appeal, the Fourth Circuit agreed with the trial court that the 20% automatic gratuity was not a “tip” as defined under the FLSA. Reviewing the Act’s regulations, the Court of Appeals noted that a tip is “a sum presented by a customer as a gift or gratuity in recognition of some service performed for him . . . [the amount of which is] determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity.” 29 C.F.R. § 531.52. Conversely, under the FLSA regulations, “[a] compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer’s establishment, is not a tip,” but instead is a service charge that “may be used in [its] entirety to satisfy the monetary requirements of the [FLSA]” if it “[is] distributed by the employer to its employees.” Id. § 531.55(a)-(b). So, compensation that qualifies as service charges can satisfy the FLSA minimum-wage and overtime obligations.

In this case, concluded the Fourth Circuit, it was “undisputed that the customers did not have unfettered discretion to leave (or not leave) the twenty-percent gratuity.” Even though a customer could request that the service charge be removed or revised, ultimately that decision remained with the restaurant’s management. “Consequently, even if the Employees could prove that Ãn would occasionally waive the automatic gratuities, that fact would not be material as it still would not enable a reasonable jury to find the twenty-percent automatic gratuity was a tip.”

However, added the Court of Appeals, the district court erred in its application of the 207(i) exemption because that exemption applies only to the overtime obligations of the FLSA, not to its minimum wage obligations. Furthermore, this exemption requires that “more than half [of the employee’s] compensation . . . represents commissions on goods or services.” 29 U.S.C. § 207(i). In this case, the only way this majority-commissions threshold was met was if both the automatic gratuities and the tips were included in the calculation of an employee’s total compensation. Moreover, while the FLSA regulations make clear that “all compensation” must be considered in determining whether the majority-commissions requirement of 207(i) is met, 29 C.F.R. § 779.415, the district court had improperly omitted tips from the calculation. Therefore, the Court of Appeals remanded the case to the district court to determine whether, using the proper calculation, the automatic gratuities met the requirements of the 207(i) overtime exemption. In addition, because this revised calculation will be needed to determine whether the restaurant will have to rely on the tip credit to satisfy its minimum wage or overtime obligations, the Court of Appeals likewise remanded the issue of whether a valid tip pool existed, or was even relevant.

If you have any questions about this decision, exemptions under the FLSA, or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Trial Court Properly Applied Rule 68 Offer of Judgment and Reduced Attorney’s Fee Demand in FLSA Case, Eleventh Circuit Concludes

The plaintiff sought more than $12,000 in unpaid wages on his FLSA claims, rejected the defendant employer’s Rule 68 offer of judgment of $3,500 on those claims, and then was awarded only $97.20 plus an equal amount of liquidated damages. Under these circumstances, the Eleventh Circuit held that the trial court properly awarded the defendant with costs of $1340. Moreover, given the plaintiff’s limited success, the Eleventh Circuit also held that the trial court correctly reduced the plaintiff’s request for attorney’s fees. Vasconcelo v. Miami Auto Max, Inc., 2020 U.S. App. LEXIS 37183 (11th Cir. Nov. 25, 2020).


The plaintiff worked for the defendant as a commissioned automobile salesman for about eight months. Unfortunately, he was not very good at car sales and by the time he left, his draws against commissions had exceeded his actual commissions by about $2700. Shortly before quitting, the plaintiff sued his employer and its owner under the Fair Labor Standards Act (FLSA), alleging that his draw-against-commission plan was unlawful. In addition, he asserted that he was required to work off the clock for which he was not paid at least minimum wage; that the defendant took unwarranted deductions from his pay; and that it did not pay him on time. He sought nearly $13,000 in unpaid wages and liquidated damages.

Several months into the litigation, the defendant made an offer of judgment under Federal Rule of Civil Procedure 68. That offer was $3,500, inclusive of liquidated damages but exclusive of attorney’s fees and costs incurred to date. The plaintiff rejected the offer. Generally under Rule 68, if a defendant makes an offer of judgment and the plaintiff subsequently is awarded less than what the defendant offered, the defendant is entitled to any costs it incurred to defend the case subsequent to the Rule 68 offer.

Following trial, the jury rejected the plaintiff’s commission-based claim but found in his favor on his off-the-clock and minimum wage claims. However, because those claims were only for 12 hours of work, the jury awarded him a paltry $97.20. The plaintiff then filed several post-trial motions, but the only one on which he prevailed was his motion to amend the judgment to award him an additional $97.20 in liquidated damages.

During briefing on the issue of fees and costs, the plaintiff sought about $56,000 in attorney’s fees and $4,000 in costs. The defendant filed its objections to these requests and additionally moved to tax $1,340 in post-offer costs against the plaintiff based on its Rule 68 motion. Adopting the magistrate judge’s recommendations, the district court entered a final judgment for plaintiff in the amount of $194.40 and awarded him $13,083 in attorney’s fees. The trial court further agreed with the magistrate judge’s recommendation that the defendant’s post-offer costs should be taxed against the plaintiff based on the defendant’s Rule 68 motion. The plaintiff appealed all aspects of this final order.

The Circuit Court Decision

The Eleventh Circuit upheld the district court’s decision in all respects. First, the Court of Appeals held that it lacked jurisdiction over the plaintiff’s appeal of the $194.40 award because it was untimely filed.  The Eleventh Circuit next concluded that the district court was within its discretion to reduce the plaintiff’s attorney’s fee request as it did, given the very limited recovery on his claims (about 1.5% of the amount he sought) and the fact that, beyond the Rule 68 offer, he had rejected numerous settlement offers throughout the litigation that exceeded what he ultimately recovered.

The Court of Appeals went on to reject several arguments by the plaintiff as to why the trial court should not have awarded the defendant’s costs on its Rule 68 offer of judgment. First, the Eleventh Circuit noted that there was no special exception from Rule 68 for cases brought under the FLSA. On the contrary, Federal Rule of Civil Procedure 1 is clear that the Rules of Civil Procedure “govern the procedure in all civil actions,” and even if there is a conflict between the underlying purposes of an act and the Rules of Civil Procedure, the Rules Enabling Act provided that any laws conflicting with the Rules that were enacted after the Rules went into effect would have “no further force or effect.” Because the FLSA was enacted after the Rules of Civil Procedure, any conflict between the two would be resolved in favor of following the Rules of Civil Procedure.

The plaintiff further argued that his former employer’s offer of judgment was ambiguous because it was unclear whether it included attorney’s fees and costs. As an initial matter, the Court of Appeals noted that any ambiguity would merely require that the offer be construed against its drafter (here, the defendant), not that the offer necessarily would be invalid. Regardless, there was no ambiguity here, as the plain and only reasonable reading of the Rule 68 offer was that any attorney’s fees and costs were not included in the $3,500 itself and instead would be separately determined by the court.

The plaintiff further asserted that the $194.40 judgment and a finding of liability is “more favorable” for purposes of Rule 68 than a $3,500 settlement and a denial of liability, and that there is a public benefit in the “vindication of rights” that he obtained by way of his jury award that must be considered in the Rule 68 analysis. While that may be true in general terms, concluded the Eleventh Circuit, the trial court did not clearly err in determining that whatever non-pecuniary interest may exist in finding the defendant liable, it was not worth the significant difference between the defendant’s offer of judgment and the plaintiff’s small jury award. As the magistrate judge had noted in his recommendation, the FLSA is not designed to merely reward attorney[’]s billing time.” Moreover, noted the Eleventh Circuit, Rule 68 does not contemplate a “holistic approach” that considers the societal benefits of establishing liability under the FLSA. On the contrary, the Rule merely “directs courts to compare the offer of judgment to the judgment [] finally obtain[ed].”

If you have any questions about this decision or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Final Piece of Chicago’s Predictive Scheduling Law Goes Into Effect on January 1, 2021

Beginning January 1, 2021, employees covered by the Chicago Fair Workweek Ordinance will have a private right of action against employers for violations of the Ordinance. Although the Ordinance took effect on July 1, 2020, due to the Covid-19 pandemic the City of Chicago delayed the effective date for private causes of action until 2021.  Jackson Lewis discusses the details of such private causes of action here.

The Future of Wage and Hour Law In the Biden Administration

As President-elect Joe Biden selects members of his Cabinet and prepares for his transition into the presidency, he and a Democratic majority in the House of Representatives may pursue a number of significant pieces of federal workplace legislation. Many of these employment law measures successfully passed the House in 2019 and 2020. And, with the possibility of a power shift in the Senate, there is the prospect that such legislation — including measures that could impact the tip credit and an increase in the federal minimum wage — may make it to the President’s desk.

Moreover, as with any transition from the President of one party to the President of another party, presidential appointments to the administrative agencies, such as the Equal Employment Opportunity Commission and Department of Labor, will further affect employers as the agencies change their enforcement priorities and embark on new rulemaking.

In The Future of Workplace Law Under President-Elect Joe Biden, Jackson Lewis attorneys look at what the election and the incoming Biden Administration may mean for employers, both with respect to wage and hour law and other aspects of the employer-employee relationship.

Pandemic Necessitates Review of “Donning and Doffing” Policies

As federal and state safety and health guidelines in response to the COVID-19 pandemic call for extensive use of personal protective equipment (PPE) in the workplace, employers should give their policies on “donning and doffing” a fresh look. Pandemic-related reopening orders issued by state and local governments may include requirements that will require employers to modify their current policies.  Jackson Lewis attorney Justin Barnes takes a look at the relevant issues and provides recommendations here.

DOL Issues New Opinion Letters on Fluctuating Workweek Hours Requirement, Other Topics

Continuing the practice it reinstituted during the current administration, on August 31, 2020 the U.S. Department of Labor’s (DOL) Wage Hour Division (WHD) issued four new Opinion Letters, addressing a variety of topics. That brings the total to 57 Opinion Letters issued since 2018, including the re-publication of 17 Opinion Letters withdrawn during the Obama administration. A brief summary of these most recent Opinion Letters is as follows:

FLSA2020-11: Does the “retail or service establishment” overtime exemption set forth in 29 U.S.C. § 201(i) apply to truck drivers who transport fluid waste from customer oilfield locations to disposal facilities?

In FLSA2020-11, the DOL concluded that the fluid waste transportation service at issue “appears” to qualify as a “retail or service establishment” under Section 207(i) and therefore its drivers, who are paid entirely on a commission basis and whose regular rate of pay meets or exceeds one and a half times the federal minimum wage, would not be eligible for overtime under the FLSA. In addition to clarifying the requirements necessary to satisfy 207(i) (a business “engaged in the making of sales of goods or services,” of which at least 75% of the sales must be recognized as retail in the particular industry, and no more than 25% of the sales are for resale), the DOL reiterates that business that provide services only to commercial businesses, rather than to the general public, may still qualify for the exemption. Moreover, FLSA2020-11 is the first opinion letter issued since the DOL withdrew the two regulations identifying so-called “retail” and “non-retail” establishments in May 2020. Under these now-abandoned regulations, waste removal was listed as a clearly non-retail establishment, whereas in this Opinion Letter the DOL concludes that such a business may qualify as retail (if, notes the DOL, the services provided are similar to those provided to the general public).

A copy of FLSA2020-11 may be found here: FLSA2020-11

FLSA2020-12: What are an employer’s obligations for reimbursing non-exempt drivers for business expenses related to the operation of the drivers’ personal vehicles, and how are those expenses calculated?

In FLSA2020-12, the DOL addresses the obligation of a retail pizza business to reimburse its delivery drivers for the costs, both variable (e.g., gas and tolls) and fixed (e.g., insurance and registration), incurred by the drivers while using their personal vehicles for deliveries. Under the FLSA, employers are required to reimburse non-exempt employees for expenses only when the costs of those expenses would result in the employees earning less than the minimum wage. But how are those costs calculated? FLSA2020-12 clarifies that employers are not required to calculate the actual expenses incurred by employees (although they may) but instead may use a “reasonable approximation” of the costs when the actual amount is unknown, such as when calculating the cost of depreciation for a percentage of a vehicle used for both business and personal reasons. In this respect, while the IRS reimbursement rate or the actual cost are acceptable methods, other reimbursement formulas may be used as long as they reasonably approximate the expenses incurred. Finally, whether an employer must consider fixed expenses – such as registration fees that the driver necessarily would incur even if the vehicle was not used for business purposes – will depend on whether the expense is incurred “primarily for the employer’s benefit.” However, employers need not make that determination on an individualized basis but, rather, may make such a determination applicable to all of the drivers at issue.

A copy of FLSA2020-12 may be found here: FLSA2020-12

FLSA2020-13: Does either the “learned professional” exemption or the “highly compensated” exemption apply to highly educated employees who provide corporate management training?

In FLSA202-13, the DOL addresses whether management trainers, who provide finance training to executive-level employees, qualify for the “learned professional” exemption from the overtime and minimum wage requirement of the FLSA. First, the DOL concludes that the trainers, who are required to possess at least a masters-level degree, likely satisfy the “duties” requirements of the exemption. However, because the employees were paid a daily rate for the work ($1,500 per day), the “salary basis” requirement is not satisfied (despite exceeding the minimum salary level requirement) because the trainers’ pay is not a predetermined amount paid on a weekly, or less often, basis. In so concluding, the DOL concurs with the recent holding of the Fifth Circuit Court of Appeals in Hewitt v. Helix Energy Solutions Group, 956 F.3d 341 (5th Cir. 2020), which held that a pay method that premises an employee’s salary on how many days the employee worked during the pay period cannot satisfy the “salary basis” requirement that the amount of salary be fixed in advance of the pay period. Had both the salary basis and salary level requirements been met, the DOL does note that additional hourly pay would not have affected the employees’ exemption status (that is, an exempt employee may be paid more than the minimum fixed salary). Finally, the DOL concluded that these employees do not satisfy the “highly compensated” exemption (currently, at least $107,432 per year) because they worked only part-time and this exemption does not include a provision for prorating the salaries of part-time employees.

A copy of FLSA202-13 may be found here: FLSA2020-13

FLSA2020-14: May the Fluctuating Workweek (FWW) pay method be used even where employee hours fluctuate only above 40 hours, or must they fluctuate both above and below 40 hours per week?

As an exception to the general rule that employees be paid one-and-a-half times their regular rate for all hours worked in excess of 40 per week, if a non-exempt employee works hours that vary from week to week and receives a pre-established fixed salary intended to compensate all “straight time” (non-overtime) hours the employee works, the employer satisfies the FLSA’s overtime pay requirements if, in addition to the salary amount, it pays at least one-half of the “regular rate” of pay for any hours worked in excess of 40. The salary must remain fixed, it must be sufficient to pay at least minimum wage for all hours worked, and the employer and employee must have a “clear and mutual understanding” that the salary will remain the same regardless of the hours worked each week. Reiterating what it had stated in its recent Final Rule on the FWW pay method, the DOL makes it clear that, notwithstanding the holdings of some district courts, the FWW pay method does not require that an employee’s hours fluctuate both above and below 40 on a regular basis. Rather, the pay method requires only that those hours regularly fluctuate — even if that fluctuation occurs primarily, or even exclusively, above 40 hours per week. The DOL’s position on this issue was clarified in response to a comment submitted by Jackson Lewis to the DOL during the Notice of Proposed Rulemaking comment period. Further discussion may be found here: Now that the DOL has reiterated its position in an Opinion Letter, employers may assert reliance on the Opinion Letter as the basis for a “good faith” defense.

A copy of FLSA2020-14 may be found here: FLSA2020-14

If you have any questions on the above wage and hour topics or any other issues, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Connecticut’s Minimum Wage Increases to $12 per hour on September 1

In May 2019, Connecticut joined a host of other states, including New York, New Jersey, and Massachusetts, in passing a bill that, pursuant to a series of incremental increases over time, will raise the state’s minimum wage to $15.00 per hour. The first increase occurred in October 2019 and the next increase, to $12 per hour, takes place on September 1, 2020.  The law provides for $1.00 per hour increases every eleven months, until reaching $15 per hour in June 2023.

Once the $15 per hour rate is reached in 2023, each January 1 thereafter the minimum wage will be adjusted by the percent change in the federal Employment Cost Index (ECI) for all civilian workers’ salaries and wages for the one-year period ending on June 30 of the previous year.

The law also froze, at the then-current levels of $6.38 per hour for hotel and restaurant staff and $8.23 per hour for bartenders, the sub-minimum hourly cash wage that hospitality employers must pay employees who customarily receive tips.  Any shortfall, between the standard hourly minimum wage rate and what these employees make in a combination of tips plus the sub-minimum hourly rates, must be borne by the employer.  Finally, the new law eliminated a lower “training wage” that employers previously could pay for learners and beginners, while retaining a “youth wage,” of no less than 85% of the standard minimum wage, for the first 90 days of employment for unemancipated minors.

Jackson Lewis will continue to monitor this and other wage and hour developments. If you have any questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.

Fifth Circuit Reverses Course, Concludes That “Day Rate” Pay Method Fails to Satisfy FLSA’s “Salary Basis” Test for Overtime Exemptions

Upon further reflection, a panel of the U.S. Court of Appeals for the Fifth Circuit has determined that paying an employee a set amount for each day that he works (i.e. on a “day rate” basis) does not satisfy the “salary basis” component required to qualify as overtime-exempt under the Fair Labor Standards Act (FLSA), even if by working a single hour in a given week, the employee will earn at least the weekly minimum salary (currently, $684.00) required to satisfy the exemption. Hewitt v. Helix Energy Solutions Group, Inc., 2020 U.S. App. LEXIS 12554 (5th Cir. Apr. 20, 2020).

In so holding, the Court of Appeals reversed the position another panel initially took in an opinion last year but subsequently withdrew, deciding the case on other grounds. Faludi v. U.S. Shale Solutions, L.L.C., 936 F.3d 215 (5th Cir. 2019), op. withdrawn, 950 F.3d 269 (5th Cir. 2020). The Fifth Circuit has now aligned itself with the Sixth Circuit in concluding that a day-rate payment scheme fails to meet the FLSA’s salary-basis test. See Hughes v. Gulf Interstate Field Servs., Inc., 878 F.3d 183, 189 (6th Cir. 2017). The Fifth Circuit includes the federal courts in Texas, Mississippi, and Louisiana, while the Sixth Circuit includes the federal courts in Michigan, Ohio, Kentucky, and Tennessee.

In Hewitt, the plaintiff worked on an offshore oil rig for periods of about a month at a time, known as “hitches.” The company paid the plaintiff a set amount for each day that he worked, and he received bi-weekly paychecks. Despite earning over $200,000 during each of the two years he was employed, and admittedly being paid at least $455.00 for each week in which he worked (the minimum salary required for exempt status during the time of his employment), the plaintiff filed suit, claiming he was entitled to overtime for each week he worked in excess of 40 hours. In response, the company asserted that he was exempt from overtime, under either the “executive” exemption or as a “highly compensated employee.” The district court agreed that the plaintiff was exempt on either basis, and granted summary judgment to the employer. The plaintiff appealed and the Fifth Circuit reversed.

Both the “white collar” (executive, administrative, and professional) exemptions and the highly compensated employee exemption involve a “duties test” and a “salary test.” The salary test includes two components: (1) the employer must pay the employee a minimum per-week rate, and (2) the employer must pay the employee on a “salary basis.” At issue on appeal was whether the employer demonstrated that the “salary basis” component was met. The pertinent U.S. Department of Labor (DOL) regulation provides:

An employee will be considered to be paid on a ‘salary basis’ within the meaning of this part if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.

29 C.F.R. § 541.602(a).

“Broadly speaking, then,” the Court of Appeals stated, “Section 541.602(a) requires that an employee receive for each pay period a ‘predetermined amount’ calculated on a ‘weekly, or less frequent’ pay period.” In other words, concluded the Court, the “employee [must] know the amount of his compensation for each weekly (or less frequent) pay period during which he works, before he works.” (emphasis added).

In this case, because the plaintiff was paid a day rate only for the actual days he worked in a given week, he could only determine what his pay would be after he completed the pay period. Thus, he did not receive a “predetermined amount” for each bi-weekly pay period. Accordingly, held the Court of Appeals, he was not paid on a “salary basis” under DOL regulations. The Court added that this conclusion was supported by the language of Section 541.602(a)(1) of the regulations, which states that “an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked” (emphasis added) and that paying an employee only for the days he works, as was the case with the plaintiff, “cannot be squared with this provision.”

Notably, one issue that did not play a significant role in this case was the potential applicability of Section 541.604(b) of the regulations. That section provides in part:

An exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek. Thus, for example, an exempt employee guaranteed compensation of at least $725 for any week in which the employee performs any work, and who normally works four or five shifts each week, may be paid $210 per shift without violating the $684-per-week salary basis requirement.

In this case, the employer did not argue that the plaintiff was guaranteed a minimum weekly amount that reasonably approximated what he usually earned. On the contrary, the employer conceded that this provision was inapplicable to the facts at hand. Moreover, as the Court already had held, the plaintiff was not paid “on a salary basis.” Nevertheless, as the regulations note, such circumstances may allow an employer to implement a salary-based pay system with a daily-rate component, without abrogating an employee’s exempt status.

If you have any questions about this decision, exemptions under the FLSA, or any other wage and hour issue, please contact the Jackson Lewis attorney(s) with whom you regularly work.

DOL Issues New Opinion Letters Revolving Around the FLSA’s “Regular Rate”

Continuing the practice it reinstituted about two years ago, on March 26, 2020 the U.S. Department of Labor’s Wage Hour Division (WHD) issued three new opinion letters, each revolving around the “regular rate” that is used when calculating any overtime pay due to non-exempt employees for work performed in excess of 40 hours in a workweek. A brief summary of those Opinion Letters is as follows:

Opinion Letter FLSA2020-3: Should an Alabama City’s End-of-Year Bonus Be Included in the Regular Rate Calculation?

In Opinion Letter FLSA2020-3, the DOL addressed whether an Alabama city’s longevity bonus, payed to city employees as mandated by the city’s board of commissioners, must be included in the regular rate calculation. The city had been paying the bonus to qualifying employees every two weeks, but was contemplating compiling the bonus to pay out in a single lump sum each year around Christmas time, and was seeking advice on whether such a payment would need to be included in the regular rate calculation.

Concluding that the bonus was to be included in the regular rate calculation, the DOL noted that the pertinent resolution of the board of commissioners directed that the bonus “shall” be paid. This mandatory language rendered the payment non-discretionary and therefore, as the FLSA regulations clearly set forth, required that it be included in the regular rate calculation. Although the city had discretion as to the form and the timing of the bonus, it did not have the authority to forego the bonus altogether. However, the DOL noted that such bonuses would be subject to exclusion from the regular rate, for “bonuses paid at Christmas or on other special occasions,” if the board of commissioners’ resolution stated that city officials “may” pay such a bonus, thereby rendering the bonus discretionary.

A copy of the FLSA2020-3 may be found here: Opinion Letter FLSA2020-3

Opinion Letter FLSA2020-4: Was the Employer’s New Hire Referral Bonus Excludable from the Regular Rate Calculation?

In Opinion Letter FLSA2020-4, the DOL examined a company’s new hire referral bonus program. Eligible employees (i.e. those whose regular job duties did not involve the recruitment and hiring of new employees) would receive a referral bonus in two installments, the first upon hire of the recommended candidate and the second if both the new hire and the referring employee were still employed a year later. Typically, under the regulations a referral bonus will not be included in the regular rate calculation if (1) participation in the referral process is voluntary; (2) the employee’s efforts in recruiting do not involve a significant amount of time; and (3) recruitment activities are limited to solicitation among friends, relatives, etc. during the employee’s off hours as part of his or her social affairs.

In the instant case, the first installment of the employer’s referral bonus payment at issue met these requirements and therefore was excludable from the regular rate. The second installment, however, prompted more scrutiny. Given that a condition of the second half of the bonus payment was that the referring employee still be employed a year later, the DOL concluded that this portion of the bonus was more akin to a longevity bonus. Longevity bonuses may still be excludable from the regular rate calculation, as long as they are not dependent upon an employee’s “hours worked, production or efficiency” or do not create a contractual right to enforcement by the employee. Here, there was no indication that the first set of circumstances existed, but it was unclear whether or not the second half of the bonus payment was contractually enforceable. Thus, the DOL could not provide a definitive answer as to whether the second installment of the bonus payment was excludable from the regular rate calculation. The Agency did note, however, that if the second installment of the bonus was paid regardless of whether the referring employee remained employed, or if it was paid shortly after the first installment, it would no longer be characterized as a longevity bonus and therefore would be excludable from the regular rate calculation as well.

A copy of FLSA2020-4 may be found here: Opinion Letter FLSA2020-4

Opinion Letter FLSA2020-5: Is “Imputed Income” From an Employer’s Insurance Benefit Included in the Regular Rate Calculation?

Opinion Letter FLSA2020-5 concerned an employer’s contributions to group term life insurance premiums. Because the IRS requires payments for employer premiums of an employee’s life insurance coverage exceeding $50,000 to be included in the employee’s taxable gross income, the employer questioned whether this also required the amount of those premiums to be included in the regular rate calculation. They do not, responded the DOL, as they are excludable under Section 207(e)(4) of the FLSA regulations as “contributions irrevocably made by an employer pursuant to a bona fide benefit plan.” IRS regulations are not co-extensive with FLSA regulations, noted the DOL, and payments that are taxable as income are not necessarily payments that should be included as part of the regular rate calculation.

A copy of FLSA2020-5 may be found here: Opinion Letter FLSA2020-5

If you have any questions about the regular rate calculation under the FLSA, or any other wage and hour questions, please contact the Jackson Lewis attorney(s) with whom you regularly work.