Category Archives: regular rate of pay

NEW GUIDANCE: DOL Reminds Employers How To Properly Calculate The Regular Rate Of Pay

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

California Alert: Wage and Hour Law Just Changed – Retroactively

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 Employers — Watch Out For These Common Wage And Hour Problems

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;
    • Gifts;
    • 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.

Rest Periods

  • 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

Meal 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).

Timekeeping Requirements

  • 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.

NEW CASE: Fluctuating Workweek Prohibited for Certain Connecticut Employees

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.

Fluctuating Work Week Method Of Compensation Is Permissible For Certain Nevada Employees

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.

‘Regular Rate of Pay’ Includes Cash In Lieu Of Benefits

According to the 9th Circuit Court of Appeals, the answer is yes. In a recent decision (Flores v. City of San Gabriel), the Court held that the Fair Labor Standard Act (FLSA) requires employers to include monetary payments made in lieu of benefits when calculating an employee’s regular rate of pay for purposes of determining overtime.

In this case, employees were subject to a Flexible Benefit Plan that provided employees with a set monetary amount to purchase various benefits. The employees were able to decline to use these funds for medical benefits and instead receive the funds as a cash payment that was added to their paychecks. The employer was not including these payments in its determination of the employees’ regular rate of pay and several employees filed a lawsuit claiming that their overtime payments were incorrect.

In this case, the Court agreed with the employees and found that cash in lieu of benefits payments are included in the regular rate of pay calculation, in addition to the following:

  • 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.

Impact on Employers

While there is a possibility that the employer will attempt to appeal this ruling with the US Supreme Court, this decision is binding on employers who operate in the 9th Circuit. It is strongly recommended that employers add cash-in-lieu of benefits in their calculations of overtime payments for non-exempt employees.

Conformity Is King – At Least When Calculating A California Employee’s Regular Rate Of Pay On A Nondiscretionary Bonus

Failing to correctly calculate an employee’s regular rate of pay can be incredibly expensive for an employer. Therefore, knowing how to correctly calculate an employee’s regular rate of pay is extremely important. Federal and California law require that overtime be paid at 1.5 time an employee’s regular rate of pay. In addition, the rate at which California’s paid sick leave benefits are paid is based on a nonexempt employee’s regular rate of pay.

The issue …

California employers have been long confused about how to properly calculate an employee’s regular rate of pay when the employee is paid a nondiscretionary bonus. However, a recent California Court of Appeal decision (Alvarado v. Dart Container Corp. of California) gives employers some much-needed guidance on this issue.

The problem …

The place an employer would normally turn for guidance, the California Labor Code, does not address how this calculation should be performed. Absent any statutory guidance, employers have two competing sources from which they can seek guidance – the US Department of Labor (DOL) (via the Fair Labor Standard Act regulations) or the Department of Labor Standards Enforcement (DLSE).

The DOL and the DLSE do not agree on how the regular rate of pay should be calculated and their different formulas provide incredibly different results.

The FLSA regulations state that an employer can calculate the regular rate of pay by simply adding the bonus to the other includable compensation paid and then dividing the sum by the total number of hours worked.

For example: An employee works 46 hours in a week, earns $12 an hour, and receives a $46 production bonus for the week. Under the FLSA formula, the regular rate of pay would be $13 an hour [(46 hours x $12/hour) + $46 bonus] / 46 hours].

Meanwhile, the DLSE has taken a different stance.  The DLSE opined that the regular rate of pay can only be determined from the straight-time hours worked. In other words, the regular rate must be the sum of all compensation divided by only the regular (non-overtime) hours worked.

 

Another example: Under the DLSE formula, the regular rate of pay would be $13.15 an hour [(40 hours x $12/hour) + $46 bonus] / 40 hours]

As shown above, the DLSE’s method results in a higher regular rate of pay and therefore higher overtime wages paid to the employee.

The question … which method should California employers use?

Absent any guidance, California employers were left to choose which method to use to calculate the regular rate of pay. In the Alvarado case, the employer chose to use the FLSA method and was sued by a former employee for unpaid wages. The employee’s claim was that the employer’s use of the FLSA method to calculate his regular rate of pay was improper and result in an underpayment of wages.

In a surprising (for California) decision, the Court of Appeal ruled that an employer’s use of the FLSA method to calculate an employee’s regular rate of pay when determining the overtime premium pay owed on a “flat sum” bonus was proper. Therefore, the employer did not owe the employee any unpaid wages.

This is an important victory for employers and proves that, at least when calculating the regular rate of pay, California will conform with federal regulations.

Could An Earlier Release Date Of The New FLSA Regulations Be On The Horizon?

In previous blog entries (DOL Announces Intended Release Date for New Overtime RuleDOL Pushes Up Anticipated Release Date of New Overtime Rule, and ETA Of DOL’s New Overtime Rule — July 2016), we reported that the US Department of Labor had announced it anticipated that the new overtime rule would be published either as early as “spring of 2016” or by “late July 2016.”  However, recent events may result in an earlier release date.

In an unexpected move, the DOL provided the proposed new overtime regulations to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget for review on March 15, 2016.  The review is required because the impact of the proposed regulations would have on the US economy is “economically significant” (i.e. would have an annual impact of over $100 million).

An OIRA generally takes about 30 days.  This could result in an earlier publication of the new regulations — possibly in late April/early May, rather than the previously announced July release date.

With the release date potentially closer,  it is strongly recommended that employers start thinking about how this change impacts their current exempt workforce as soon as possible.  As with any changes to employee classification, we recommend that you consult with an HR Professional or qualified legal counsel about how best to present these changes to the affected workforce.

Oklahoma Federal Court Clarifies Regular Rate Of Pay Calculation

In a recent decision (Sharp v. CGG Land (U.S.) Inc.), the Oklahoma Federal District Court held that payment for travel expenses may be excluded from an employer’s calculation of the regular rate of pay for purposes of calculating the employee’s overtime rate.

In this case, the employer paid its employees a “fixed” travel expense reimbursement (i.e. a per diem) of $35, which was intended to compensate employees for the meal expenses they incurred when they travelled to remote work sites.   The employee argued that the payment was a wage and should have been included in the employer’s calculation of the employee’s regular rate of pay. The Court disagreed and held that the payments were reasonable payments for travel expenses and should be excluded from the calculation of the regular rate of pay.