Tag 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

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.

‘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.