The US Department of Labor (DOL) recently issued an opinion letter that reminds employers how to properly calculate an employee’s regular rate of pay for purposes of overtime compensation.
In this letter, the DOL was responding to an inquiry about whether a company’s compensation plan, which pays an average hourly rate that may vary from workweek to workweek, complies with the Fair Labor Standards Act (FLSA). Specifically, to calculate weekly pay, the company was multiplying an employee’s time with clients by his or her hourly pay rate for such work. The employer then divided the product by the employee’s total hours worked. The company then explained that its “standard rate of pay” was $10 per hour and that it paid overtime based on the $10 per hour rate.
According to the DOL, while the employer’s plan likely complied with the FLSA’s minimum wage requirement (that an employee is paid at least minimum wage for every hour worked), it might not comply with the FLSA’s overtime requirement. Continue reading NEW GUIDANCE: DOL Reminds Employers How To Properly Calculate The Regular Rate Of Pay
On April 2, 2018, the US Supreme Court settled a contentious battle of interpretations under the Fair Labor Standards Act (FLSA): are auto dealership service advisors exempt under the FLSA? To the relief of dealerships across the country, the court held that they are exempt. While addressing a narrow range of employees (service advisors), this case was a victory for employers and arguably establishes (or re-establishes) an employer’s right to reasonably interpret the law in its employment practices.
Some Brief History
The FLSA provides that “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” is exempt from overtime. Until 2011, the US Department of Labor had interpreted this provision to mean that auto dealership service providers were exempt because such employees were engaged in servicing automobiles by determining the service needs of vehicles and selling supplemental services to customers. In 2011, the DOL reversed course (and 40 years of precedent) and stated that service advisors are non-exempt, thus entitling them to overtime pay and creating significant wage and hour liability for auto dealerships.
Various service providers took this opportunity to bring a class action lawsuit against Encino Motorcars for unpaid overtime and other wage and hour violations. After making it all the way to the Supreme Court, back down to the Ninth Circuit Court of Appeals, and back up to the Supreme Court again, the case has been settled.
In short, the Supreme Court held that the law was clear: service advisors are exempt from overtime pay under the FLSA because they are “salesme[n]…primarily engaged in…servicing automobiles.”
An Important Note
In ruling for the dealership, the Supreme Court rejected the commonly cited principle of interpretation that the FLSA’s exemptions should be interpreted narrowly. Instead, the court held that a court’s role in reading the FLSA exemptions is to give them a fair reading. This means that moving forward, instead of interpreting the law in a manner that all but assumes an employer has misclassified an employee as exempt, courts should afford employers a fair opportunity to demonstrate that their interpretation of the law is reasonable.
On March 5, 2018, the California Supreme Court settled a previously ambiguous area of wage and hour law in California: How an employee’s overtime rate should be calculated when an employee has earned a flat sum bonus during the pay period. Unfortunately, the court decided the matter squarely against employers and determined that its ruling should apply RETROACTIVELY. As a result, California employers who pay their employees a flat sum bonus need to take immediate action to reduce the potential for wage and hour claims.
Some Background on the Issue
To better understand the impact of this case, it’s necessary to understand how the payment of non-discretionary bonuses impact an employee’s overtime compensation. Non-discretionary bonuses are those that an employer pays when the employee meets certain criteria, such as level of production or by working a specified number of days or specific days in the week. Such bonuses are different from discretionary bonuses, such as a holiday bonus, which the employer may choose to pay or not at their discretion.
When an employee earns a non-discretionary bonus during a pay period, the employer must include the bonus in the calculation of the employee’s regulate rate of pay and corresponding overtime compensation. Regular rate is calculated by adding all compensation earned by an employee during the pay period and dividing that number by the total hours actually worked by the employee. Compensation included in the regular rate calculation includes hourly pay, piece rate, commissions, non-discretionary bonuses, and the value of meals and lodging. The employee’s overtime is calculated by dividing the regular rate by ½ and multiplying that number by the total overtime hours worked (in California, generally all hours over 8 in a day and 40 in a week).
Thus, as the basis for calculating the overtime rate, the manner in which regular rate of pay is calculated can have a significant impact on the employee’s overtime compensation.
The New Rule Continue reading California Alert: Wage and Hour Law Just Changed – Retroactively
California’s wage and hour laws are complicated and is constantly changing. As a result, employers often find themselves running afoul of one (or more) of these laws and facing potential liability.
To mitigate your risk of a wage claim, we recommend that employers regularly audit their wage and hour practices to ensure compliance with California law. When conducting this audit, make sure you have a clear understanding of the following common problems relating to compensating non-exempt employees:
Overtime And Double Time For Non-Exempt (Hourly Paid) Employees
- California employers must pay overtime (1.5 times the employee’s regular rate of pay) to non-exempt employees as follows:
- For all hours worked over eight hours in a workday or 40 hours a week
- The first 8 hours worked on the 7th consecutive day of work in a workweek
- California employers must pay double time (2 times the employee’s regular rate of pay) to non-exempt employees as follows:
- For hours worked over 12 hours in any workday
- For hours worked over 8 hours on the 7th consecutive day of work in a workweek
Calculating The Regular Rate Of Pay
- The regular rate of pay is the employee’s actual rate of pay, which includes the employee’s regular hourly earnings (i.e. hourly rate of pay) plus any additional compensation that must be included in the regular rate of pay – including:
- Commission payments;
- Piece rate payments;
- Non-discretionary bonuses (e.g. productivity bonus, performance bonus, attendance bonus, longevity bonus, cost-of-living bonus);
- Awards or prizes won for quality, quantity or efficiency;
- Shift differentials;
- Premiums paid for hazardous, arduous or dirty work;
- Non-cash wages in the form of goods, board, or lodging;
- Pay for non-productive work hours (e.g. rest breaks, waiting time, attending meetings); and
- Lump sum on-call payments.
- Payments excluded from regular rate of pay:
- Premium (or extra) pay for daily or weekly overtime;
- Premium pay for work on weekends, holidays, regular days of rest or the sixth or seventh day of the workweek (if it is at least 1.5 times the rate for work performed during non-overtime hours on other days);
- Premium pay for work outside the agreed to hours (if it is at least 1.5 times the rate for work performed during the agreed to hours);
- Discretionary bonuses;
- Certain payments that are not made as compensation for hours of work (e.g. vacation pay, paid time off, sick time, and reimbursement for business expenses);
- Payments to a bona fide profit-sharing plan or trust or a bona fide thrift or savings plan;
- Irrevocable contributions to employee health and welfare plans; and
- Certain stock options, appreciation rights and purchase programs.
Split Shift Premiums
- Under the split shift premium rule, an employee must receive one hour’s pay at no less than the minimum wage rate for the time between shifts. An employer can use any hourly amount the employee earns above minimum wage to offset the split shift requirement.
Reporting Time Pay
- “Reporting time pay” is partial compensation for employees who report to work expecting to work a specified number of hours and who are deprived of that amount because of inadequate scheduling or lack of proper notice by the employer. The provisions of the law regarding reporting time pay are as follows:
- Each workday an employee is required to report to work, but is not put to work or is furnished with less than half of his or her usual or scheduled day’s work, he or she must be paid for half the usual or scheduled day’s work, but in no event for less than two hours nor more than four hours, at his or her regular rate of pay.
- If an employee is required to report to work a second time in any one workday and is furnished less than two hours of work on the second reporting, he or she must be paid for two hours at his or her regular rate of pay.
- Employers are required to provide a 10-minute, duty-free rest break during each period of four hours (or major fraction thereof, i.e. 2 hours) worked by an employee. Employers are not required rest periods when an employee’s total daily work time is less than 3½ hours. This means that employees are entitled to rest periods as follows:
- An employee who works more than 3½ hours and up to 6 hours is entitled to 1 rest period
- An employee who works more than 6 hours and up to 10 hours is entitled to 2 rest periods
- An employee who works more than 10 hours and up to 14 hours is entitled to 3 rest periods
- An employee who works more than 14 hours and up to 18 hours is entitled to 4 rest periods
- Any employee who works more than five hours in a day must be provided with a 30-minute unpaid, duty free meal period. The meal period must be provided no later than the end of the employee’s 5th hour of work (in other words, before the start of the employee’s 6th hour of work).
- If an employee’s entire workday is completed in six hours or less, the meal period may be waived by mutual consent of the employer and the employee. This consent should be in writing and signed by both the employee and the employer. If the employee’s workday is more than 6 hours, then the meal period cannot be waived.
- Any employee who works more than ten (10) hours in a day must be provided with a second unpaid, duty free meal period, also at least 30 minutes in duration. The second meal period must begin no later than the end of an employee’s 10th hour of work (i.e. before the employee works more than 10 hours).
- If the total workday is 12 hours or less, the second meal period may be waived by mutual consent of the employer and employee, but only if the first meal period was taken. If an employee works more than 12 hours in a day, the second meal period may not be waived (except employees in the health care industry may voluntarily waive their second meal period after 12 hours).
- Employers must record the beginning and end of each workday and the beginning and end of unpaid meal or other unpaid periods.
Wage Theft Protection Act Notice
- All non-exempt employees must be provided with a Wage Theft Prevention Notice at time of hire and within 7 days of a change. A sample notice is available here.
Cellphone Reimbursement (** also applies to exempt employees)
- Employers must reimburse employees who use personal cellphones for business purposes for both voice and data fees incurred for business purposes.
Paid Sick Leave (** also applies to exempt employees)
- Employers must provide employees with paid sick leave in accordance with state or, if applicable, local law.
Pay Stub Requirements (** also applies to exempt employees)
- Employers must provide all employees with an itemized statement of wages that includes the following information:
- Gross wages earned;
- Total hours worked by the employee (not required for salaried, exempt employees);
- For piece-rate employees, the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, and the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period, and the total hours of other nonproductive time, the rate of compensation, and the gross wages paid for that time during the pay period;
- All deductions (all deductions made on written orders of the employee may be aggregated and shown as one item);
- Net wages earned;
- The inclusive dates of the period for which the employee is paid;
- The employee’s name and the last four digits of his or her social security number or an employee identification number other than a social security number;
- The name and address of the legal entity that is the employer; and
- All applicable hourly rates in effect during the pay period, and the corresponding number of hours worked at each hourly rate by the employee.
- In addition, all employee paychecks must list the address of a specific location within the state where the check can be cashed without a fee.
Vacation Pay (** also applies to exempt employees)
- Forfeiture of vacation is prohibited in California
- “Use it or lose it” policies are not permitted
- All accrued but unused vacation must be paid upon termination
Final Paychecks (** also applies to exempt employees)
- All employees must receive their final wages within the following timeframe:
- Immediately upon involuntary termination
- Within 72 hours if employee resigns without notice
- On last day of work if employee resigns with at least 72 hours’ notice
- All wages “due and owing” must be paid with the final wages, otherwise waiting time penalties are assessed. This includes accrued, unused vacation and/or meal/rest period premiums
- Commissions or other performance-based pay must be paid as soon as it can be calculated, regardless of when it otherwise would be paid.
- No deduction may be taken from final paychecks unless legally mandated, authorized in writing by the employee, or for a loss attributable to the employee’s dishonest or willful act or gross negligence (but only if the employer is absolutely positive that it can be proven that the employee was not simply negligent). No balloon deductions for payoffs of employer loans to employees.
With the passage of Senate Bill 490, California has dramatically altered how salon owners and barbershops can pay their stylists/barbers. Under this new law, paying a stylist/barber on a commission-only basis or on a minimum wage plus commissions basis is no longer considered “commission-based pay” for the purpose of qualifying those employees for a “commissioned employee overtime exemption.”
Under the new law, a stylist/barber’s wages only qualify as commissions when both of the following requirements are met:
- the employee’s base hourly rate is at least two times the state minimum wage in addition to commissions paid; and
- the employee’s wages are paid at least twice during each calendar month on days designated in advance by the employer as regular paydays.
This means that starting January 1, 2018, a stylist/barber would need to earn an hourly rate of at least $22.00 per hour (2x the California minimum wage for large employers, or $21 per hour for small employers) in order for an “incentive pay” to qualify as commissions. In addition, these employees must be paid the hourly rate for all hours worked – including nonproductive time and breaks.
The new law does not require that all stylists/barbers are paid in this fashion. This is simply the only way these employees can qualify for the commissioned employee exemption. Instead, these employees can simply be paid a flat hourly rate (with or without receiving any incentive pay), but the employee would be entitled to receive overtime pay in accordance with California law and would still need to be paid for nonproductive time and breaks.
If a salon/barber shop owner chooses to pay its stylists/barbers through an hourly rate and commissions, then there will need to be a written commission agreement that is compliant with California law.
This new law goes into effect on January 1, 2018. It is recommended that all salon/barber shop owner review how their stylists/barbers are paid and verify that their compensation is compliant with California law.
On October 30, 2017, the US Department of Labor announced that it will soon “undertake new rulemaking with regard to overtime.” This announcement comes after the public comment period on the DOL’s Request for Information (RFI) regarding the Overtime Final Rule (where the DOL was seeking public input on what changes should be made to the overtime rule) closed.
In addition to this announcement, the Department of Justice, on behalf of the Department of Labor, filed a notice to appeal the Court’s ruling on the motion for summary judgment challenging the Overtime Rule. In this ruling (which was issued on August 31, 2017), the Court held that the Overtime Rule’s salary level exceeded the DOL’s authority, and concluded that the Final Rule is invalid. The DOJ does not, however, intend to proceed with this appeal until the DOL determines what the new exempt salary level should be.
At this time, the DOL has not released any further information regarding the release of a New Overtime Rule. However based on previous comments made by Secretary Acosta, it is expected the new salary level will be in the low $30,000 range.
The next step in the rulemaking process will be for the DOL to issue a proposed rule. Once that proposed rule is published, there will be a public comment period followed by the issuance of a final rule.
It is recommended that all employers keep on the lookout for this new rule. In addition, we will continue to report developments here.
In a recent decision (Williams v. General Nutrition Ctrs., Inc.) the Connecticut Supreme Court held that the fluctuating workweek method of calculating overtime may not be used to calculate overtime for three types of employees — retail employees paid by commission, delivery drivers, and sales merchandisers.
Under the fluctuating workweek method of calculating overtime, an employer can limit overtime costs by paying an employee whose hours fluctuate from week to week a fixed amount per week as straight time, regardless of the number of hours worked. In addition, under this method, the payment for overtime hours is just one-half times the regular rate, instead of one and one-half times the rate because the straight time rate is understood to compensate employees for all hours actually worked.
While the Connecticut Supreme Court held that the Connecticut wage and hour laws do not prohibit employers from paying most employees under the fluctuating workweek method, the court found that employers are prohibited from using this method for certain employees due to state regulation (retail employees paid by commission) or state law (delivery drivers and sales merchandisers)
With respect to retail employees paid by commission a state regulation requires retail employers determine commissioned employees’ regular rate of pay by dividing their weekly pay by the hours they usually, rather than actually, work in a week. Therefore, the fluctuating workweek method may not be used for these employees because it requires consideration of the hours they actually work.
Similarly for delivery drivers and sales merchandisers, a state statute requires employers determine delivery drivers’ and sales merchandisers’ regular rate of pay by dividing the total weekly pay by 40. As a result, the fluctuating workweek method may not be used for these employees either.
Recommendations for employers
It is recommended that Connecticut employers of these types of employees review their method of calculating the regular rate of pay for these employees and verify that they are complying with Connecticut law.
Employers across the country can breathe a collective sigh of relief. On August 31, 2017, the US District Court for the Eastern District of Texas issued a final ruling that officially invalidates (or kills) the DOL Overtime rule. In short, the Court found that the DOL had “overstepped its bounds” by setting such a high salary level for the executive, administrative, and professional exemptions.
What does this mean for employers?
In short, this ruling means that the exempt salary threshold for executive, administrative, and professional employees remains at $23,600 per year (or at the established state level, if the employer is in a state that has implemented a higher exempt salary threshold).
One thing of note, the Court clarified that its ruling did not mean that the DOL could not set any minimum salary level as one of the tests for determining whether an individual is exempt from overtime under these exemptions. With this in mind, there remains a possibility that the DOL may attempt to increase the minimum salary level in the future. However, if that increase were to occur, it would most likely be a much less drastic increase (and not a doubling of the existing salary level).
At the present time, the DOL has not announced any intention to seek an increase of the salary level. That being said, employers should prepare for an eventual increase to the exempt salary threshold, even though it isn’t clear what the final number will be.
Oregon Governor Kate Brown recently signed House Bill 3458 into law. This new law is intended to fix ambiguities in Oregon’s daily overtime law, which covers non-union employees working in mills, factories, and manufacturing establishments.
The daily overtime law requires Oregon employers with operations in mills, factories, and manufacturing establishments pay employees daily overtime after 10 hours of work. These employees are also entitled to overtime compensation after 40 hours of work in the workweek. The existing law did not, however, clearly address how overtime was to be paid if an employee earned both daily and weekly overtime compensation.
The new law clarifies that employees who are entitled to receive both daily and weekly overtime must be paid only the greater of the two, rather than both. This “clarifying language” is effective immediately.
The new law also revises limits on weekly work hours for those employed in mills, factories, or other manufacturing establishments. Under the existing law, daily work hours in mills, factories, and manufacturing establishments are capped at 13 hours. Under the new law, absent an undue hardship, employers may not require employees to work more than 55 hours a week. However, employees can agree in writing to work up to 60 hours a week. Employers are also prohibited from disciplining employees who do not agree to work in excess of 55 hours a week.
The new weekly hours cap portion of the law goes into effect on January 1, 2018.
In a recently published Advisory Opinion, the Nevada Labor Commissioner has opined that Nevada employers may use the fluctuating workweek method to compensate certain types of nonexempt Nevada employees.
What is the fluctuating workweek method?
The fluctuating workweek method is a accept method of compensation under the Fair Labor Standards Act for nonexempt employees who are paid a fixed salary for all hours worked. Under this method, the employer and employee have come to an understanding that the employee will receive the fixed salary as straight time pay for whatever hours he is called upon to work in a workweek – no matter how few or how many.
If the employee works over 40 hours in a workweek, the employer then pays the employee overtime based on one-half the employee’s regular rate of pay. The regular rate of pay is calculated by dividing the employee’s weekly salary by the total hours the employee worked that week. That number is then divided in half to determine the overtime rate – because the employer and employee previously agreed that the salary compensated the employee for all straight time hours worked.
What did the Nevada Labor Commissioner opine?
The Labor Commissioner found that the fluctuating workweek method of compensation was permissible for fixed salary nonexempt employees. In addition, he also found that fluctuating workweek method of compensation is also permissible where a fixed salary employee is also paid commissions and bonuses provided that those commissioner and/or bonuses are included in the weekly amount of pay when determining the employee’s regular rate of pay.
Take home for employers
While the fluctuating workweek method is a accept method of compensation in Nevada, it is recommended that Nevada employers consult with an HR Professional or legal counsel before using this method of payment with their employees.