DOL Gives Guidance on Three Common Employee Pay Issues
July 28, 2019 by Margaret Mead
This month the Department of Labor announced three new opinion letters dealing with Fair Labor Standards Act compliance issues. Employers may recognize some of these common problems, and the DOL has provided guidance, although it cautions that the determination is based specifically on the reported facts.
FLSA 2019-7 – Allocating Nondiscretionary Bonus Toward Regular Rate of Pay
In opinion FLSA 2019-7, the DOL addressed whether a nondiscretionary bonus quarterly or annually should be averaged over the period it covered in order to recalculate the worker’s “regular rate of pay.” The answer is that, yes, such averaging can be a reasonable method of allocation.
An employer may base a nondiscretionary bonus on work performed during multiple workweeks and pay the bonus at the end of the bonus period. See 29 C.F.R. § 778.209. In that case, the employer may “disregard the bonus in computing the regular hourly rate until such time as the amount of the bonus can be ascertained.” 29 C.F.R. § 778.209(a). Once the amount is ascertainable, generally the employer must retrospectively recalculate the regular rate for each workweek in the bonus period and pay the additional overtime compensation due on the bonus. See id. “If it is impossible to allocate the bonus among the workweeks of the period in proportion to the amount of the bonus actually earned each week,” the employer must adopt “some other reasonable and equitable method of allocation.” 29 C.F.R. § 778.209(b). One such method is averaging the bonus earnings across workweeks. See id.
What does this mean for you, the Employer? If you pay bonuses to non-exempt employees, you may disregard the bonus in calculating overtime until the time the bonus amount is determined. Then, you can attribute the bonus evenly across workweeks in the bonus period if the bonus amount is not specifically attributable to certain days’ work.
FLSA 2019-8 – Highly Compensated Exemption
In opinion FLSA 2019-8, the DOL addressed whether paralegals working for a trade organization qualified as exempt from overtime. The paralegals were paid a salary of at least $100,000 and occasionally performed work including keeping and maintaining corporate and official records, assisting the finance department with bank account matters, and budgeting, which were “directly related to management or general business operations.” Notably, the exempt duty justifying the exemption need not be the employee’s primary duty.
An employee qualifies for the highly compensated exemption if: (1) the employee’s “primary duty includes performing office or non-manual work”; (2) the employee receives total annual compensation of at least $100,000; and (3) the employee “customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee.” 29 C.F.R. § 541.601. To satisfy the third prong, the employee need only perform one or more exempt duties more than occasionally. 29 C.F.R. § 541.701 (noting that the duty’s “frequency … may be less than constant”). An exempt duty is more than occasional if it is performed normally and recurrently every workweek, but not if it is an isolated or one-time task. See id. Additionally, this exempt duty need not be the employee’s “primary duty.” See 29 C.F.R. § 541.601(a)(2); Smith v. Ochsner Health Sys., 353 F. Supp. 3d 483, 498 (E.D. La. 2018). Because “[a] high level of compensation is a strong indicator of an employee’s exempt status,” the highly compensated employee exemption “eliminate[s] the need for a detailed analysis of the employee’s job duties.” 29 C.F.R. § 541.601(c); see Hicks v. Mercedes-Benz U.S. Int’l, Inc., No. 7:08-cv-0536-LSC, 2012 WL 1566140, at *6 (N.D. Ala. Apr. 30, 2012) (“[T]he need to examine job duties is considerably relaxed for the highly compensated exemption ….”)
What does this mean for you, the Employer? If an employee is highly compensated, they may be exempt from overtime even if their “exempt” duties are not their primary duties. Ask your attorney to help you review the employee’s duties to determine if they qualify as exempt.
FLSA 2019-9 – Rounding Recorded Time
Where the employer’s payroll software converts the amount of time an employee records working in each work period into a numerical figure in decimal form extended out to six decimal points, it is permissible for the decimal point to be rounded up or down, as long as it is consistent.
It is common and acceptable for employers to round time in determining an employee’s hours worked provided that doing so “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” 29 C.F.R. § 785.48(b). It has been our policy to accept rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour as long as the rounding averages out so that the employees are compensated for all the time they actually work. See id.; WHD Opinion Letter, 1994 WL 1004879 (Nov. 7, 1994); see also Corbin v. Time Warner Entm’t-Advance/Newhouse P’ship, 821 F.3d 1069, 1077-79 (9th Cir. 2016) (upholding a policy of rounding to the nearest quarter hour, which was “neutral on its face and as applied” to the plaintiff-employee over several pay periods).
What does this mean for you, the Employer? Rounding an employee’s recorded hours is acceptable as long as it works both ways. For example, your employee came in 7 minutes late, but you did not deduct pay for the lost 7 minutes. However, when the employee stays 7 minutes late you do not pay for the additional 7 minutes. The rounding must average out so that employee is compensated for all of his/her time worked.