The Wage and Hour Division of the U.S. Department of Labor (the “WHD”) issued three new opinion letters under the Fair Labor Standards Act (the “FLSA”), Op. Letters FLSA2019-7, -8, and -9, each dated July 1, 2019. Each Opinion Letter is heavily dependent on the very specific facts presented for consideration in it, and two involve some detailed arithmetic calculations and principles that cannot be summarized and are unlikely to specifically reoccur at your company or organization. So, rather than repeating those details here, we will summarize the substance of the opinions and what general points you as an employer should take away from them.
Op. Letter FLSA2019-7 concerns calculating workers’ regular hourly rate of pay for a week when the workers receive non-discretionary additional pay on a quarterly and annual basis (understood in the language of the FLSA as “bonuses” even though they are non-discretionary). Under the bonus program involved in Op. Letter FLSA2019-7, the quarterly bonus for each employee was an arithmetic function of the number of hours worked by the employee during the previous quarter at the employee’s various rates of pay for those hours. That is to say, the computation took into consideration hours worked by each employee at their straight-time, time-and-one-half, and double-time rates.
The bonuses were thus a form of quarterly deferred compensation, meaning money actually earned by the employees for their work performed throughout the weeks in the previous quarter, but not paid to them until after the end of the quarter. So in a situation like this, the question is: what is the employee’s weekly “regular rate of pay” for calculating overtime for each week during that quarter? Is it simply the rate that was actually paid to the employee in a week based on the hours worked that week, or is it a rate based on that plus some additional amount attributable retrospectively to the nondiscretionary bonus that the employee earned at the end of the quarter?
WHD explains that an employer may “disregard the bonus in computing the regular hourly rate until such time as the amount of the bonus can be ascertained,” but once that bonus amount is ascertained, “generally the employer must retrospectively recalculate the regular rate for each workweek in the bonus period and pay any additional overtime compensation due on the bonus.”
In the case of FLSA2019-7, the specific manner in which the quarterly bonuses were calculated arithmetically already took into account the overtime compensation retrospectively due to the bonus. WHD thus opined that the employer need only pay that bonus, and not also retrospectively recalculate the regular rate for each workweek in the bonus period to calculate and pay additional overtime. In contrast, WHD observed that the manner in which the annual bonus was calculated (i.e., a percentage of the employee’s straight-time rate for 2,080 hours over the course of the year) did not build into its equation payment for additional overtime due in previous weeks based on that annual bonus. Thus the employer was required, in addition to paying the annual bonus, to retrospectively recalculate the regular rate for each workweek in the prior year allocating the bonus over those weeks and then paying the additional overtime due.
The moral of the story is that calculating overtime due for a nondiscretionary bonus period is no easy task when bonuses (or other forms of compensation attributable to time worked in previous weeks) are paid quarterly, semi-annually, annually or the like.[1] We recommend, therefore, that if your company or organization maintains this sort of payroll practice, that you ask a lawyer familiar with wage and hour laws to review the details of that practice to ensure that your company or organization is not unwittingly building up a potentially sizable liability for unpaid wages.
Op. Letter FLSA2019-8 does not concern math, but instead whether paralegals who work in a certain international trade organization are exempt from overtime under the “highly compensated exemption.” The first thing to keep in mind from this opinion is that the term “paralegal” is not a defined term under the FLSA or generally in the industry. Law firms, for example, regularly employ “paralegals,” but the type of work that they do from firm to firm, or even within a firm, varies so much that the issue under the FLSA is not whether they are called “paralegals,” but instead, what and how are they paid and what, exactly, their job duties entail. Not surprisingly, therefore, Op. Letter FLSA2019-8, concludes that the paralegals at issue in that situation did qualify as exempt, but also cautions that other opinions concluding that other paralegals are not exempt are still also valid.
Op. Letter FLSA2019-8 explains, generally, that 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[2]; 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.”
To satisfy the third prong, the employee need only perform one or more exempt duties more than occasionally. “More than occasional” means it is performed normally and recurrently every workweek, rather than an isolated or one-time task. Additionally, this exempt duty need not be the employee’s “primary duty.”
Op. Letter FLSA2019-8 also express support for the maxim that 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.”
The WHD in FLSA2019-8 observed that the paralegals in question earned more than $100,000 in salary annually, and among the list of duties they perform “more than occasionally” were exempt duties or responsibilities of an administrative employee, namely, for example, budgeting for the legal department, keeping and maintaining corporate and official records, and assisting the finance department with bank account matters. WHD thus opined that these paralegals were exempt.
WHD also noted that unlike the “administrative exemption,” which requires that the employee’s primary duty includes the exercise of discretion and independent judgment on significant matters, the “highly compensation exemption” does not require that this element of discretion and independent judgment be satisfied in order for the employee to be exempt.
Op. Letter FLSA 2019-9 returns to the theme of arithmetic functions and principles. Though the details of the arithmetic in it are somewhat difficult to follow, the general issue is simple:
When calculating hours worked under the FLSA (and under other laws that incorporate FLSA rules), is it permissible to round up or down the number of hours worked when they are clocked in and out to small fractions of hours for certain periods during the workday—for example, out to six decimal points—and then rounded off to two decimal points when computing daily pay for that day? In the case of this opinion, the situation was that if the third decimal was less than 0.005, the second decimal stayed the same; if the third decimal was 0.005 or greater, the second decimal was rounded up. This rounding was computed via a computer payroll software program, though employees clocked in and out during the workday.
Op. Letter FLSA 2019-9 recognizes that the FLSA accepts that it is common for employers to round time. The rule, however, is that the rounding principle must not result “over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” Rounding, says the opinion, has been acceptable in other cases, for example, to the nearest five minutes, one-tenth of an hour, or even one-half hour, again as long as the rounding “averages out so that the employees are compensated for all the time they actually work.” In the situation addressed in this opinion, the rounding was to the nearest 1/100th of an hour. According to DWH, that rounding will not result “over a period of time, in failure to compensate the employees properly.”
Would the result have been the same if the software only rounded the time up if the third decimal was, for example, equal to or greater than 0.006, instead of 0.005? Would this result in failing to compensate the employees “for all the time they have actually worked”?
We suppose this might depend on a complex statistical analysis of how often in a specific workplace do workers really work, for example, X.0058 hours a day (which would be rounded down to X.00 hours), compared to, for example, X.0061 hours a day (which would count as X.01). That being said, we are all taught to round up at the “half or more” point, not at the “more than half or more point,” so a payroll system that rounds off to the tenth of an hour, and credits an employee with 7.4 hours of work when, for example, she clocks at 7.45999 for the day, would seem suspect from the start.
The moral of the story is that your company or organization should at least check and see exactly how hours are rounded off, if at all, by computer software or otherwise. If something seems possibly unusual or suspect, have a lawyer review it. Rudman Winchell’s experienced employment lawyers are happy to lend guidance in this regard.
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[1] In contrast to the nondiscretionary type of bonus involved in FLSA2019-7, discretionary bonuses can be excluded from an employee’s regular rate.
[2] The “total annual compensation” of $100,000 must include, at a minimum, a weekly amount equal to the minimum salary requirements for exempt administrative, executive, or professional employees. This weekly amount must be paid on either a salary or fee basis. Thus, for example, an employee whose compensation is based entirely on commissions may not qualify for the “highly compensated exemption”, even if they earn more than $100,000 in a year and regularly engage in exempt duties. Further, the $100,000 per year compensation figure is current, but is likely to change once WHD issues new regulations which are currently under consideration.