Employment Law Daily New DOL opinion letters address overtime pay, highly compensated employees, hours worked rounding
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Monday, July 8, 2019

New DOL opinion letters address overtime pay, highly compensated employees, hours worked rounding

By Pamela Wolf, J.D.

On July 1, 2019, new Wage and Hour Administrator Cheryl M. Stanton issued three opinion letters addressing FLSA compliance issues related to calculation of overtime pay when an employee receives discretionary bonuses, whether paralegals fit under the highly compensated employee exemption, and rounding practices used in calculating hours worked.

Overtime pay, nondiscretionary bonuses. This opinion letter addresses the calculation of overtime pay for nondiscretionary bonuses paid on a quarterly and annual basis (FLSA2019-7). The inquirer sought an opinion as to whether the FLSA requires an employer to include a nondiscretionary bonus that is a fixed percentage of straight-time wages received over multiple workweeks in the calculation of the employees’ regular rate of pay at the end of each workweek; if not, whether the employer may, when paying the bonus, recalculate the regular rate for each workweek of the bonus period by averaging the bonus earnings across the workweeks.

Calculation per CBA. Under a collective bargaining agreement, the employer pays the employee a quarterly bonus and an annual qualification bonus based on fixed percentages of the employee’s straight-time rate and the journey straight-time rate, respectively. The quarterly bonus is 15 percent of the employee’s contractual straight-time hourly rate for each hour earned at a straight-time rate; 22.5 percent (1.5 × 15 percent) of the employee’s contractual straight-time hourly rate for each hour earned at a time-and-one-half rate; and 18.75 percent (1.25 × 15 percent) of the employee’s contractual straight-time hourly rate for each hour earned at a double-time rate. The employee’s annual bonus is one percent of the journey straight-time hourly rate for 2,080 hours.

Weekly rate calculations. The employer calculates the employee’s weekly regular pay rate without including quarterly or annual bonus earnings. Instead, the employer pays the quarterly or annual bonus, retrospectively recalculates the weekly regular rates for the bonus period to include the bonus earnings, and then pays the difference in overtime compensation. In making this recalculation for the quarterly and annual bonuses, the employer averages the bonus earnings across the workweeks of the quarterly or annual bonus period, instead of using the actual bonus earnings in a given workweek.

Annual bonus. The annual bonus is not tied to straight-time or overtime hours actually worked but instead is one percent of the journey straight-time hourly rate for 2,080 hours, according to the opinion letter. The employer must, after paying the annual bonus, recalculate the regular rate for each workweek in the bonus period and pay the overtime compensation due on the annual bonus. However, the employer need not include the annual bonus in the regular rate calculation until the employer can ascertain the weekly amount of the bonus at the end of the bonus period. Here, because in making this recalculation the employer can readily ascertain the proportionate amount of the annual bonus that the employee earns in each workweek, the employer must retrospectively include those exact proportionate amounts in the regular rate for each workweek.

Quarterly bonus. However, after paying the quarterly percentage bonus on the employee’s straight-time and overtime wages, the employer need not recalculate the regular rate for each workweek in the bonus period to include this quarterly bonus. A bonus of 15 percent of both the employee’s straight-time and overtime wages would simultaneously include all overtime compensation due on the bonus as an arithmetic fact. Thus, the quarterly bonus of 15 percent of the employee’s contractual straight-time hourly rate for each hour earned at a straight-time rate, and 22.5 percent (1.5 × 15 percent) of the contractual straight-time hourly rate for each hour earned at a time-and-one-half rate (assuming this is equivalent to 15 percent of all overtime compensation due), appears to comply with 29 C.F.R. § 778.210 and therefore satisfies the FLSA’s overtime requirements for the bonus.

Highly qualified employee exemption. The second opinion letter discusses the application of the highly compensated employee exemption to paralegals employed by a global trade organization (FLSA2019-8). The organization employs one or more paralegals who engage in non-manual work and receive an annual salary of at least $100,000, which includes at least $455 per week paid on a salary or fee basis. Among other duties, the paralegals keep and maintain records; prepare and distribute notices; prepare and submit music licensing and annual state registration reports; assist the finance department with bank account matters; assist with trademark submissions and renewals; assist with real estate matters; maintain the legal department budget; assist with annual audits; help form new entities and maintain existing entities; prepare legal department training seminars; liaise between in-house and outside counsel; and notarize documents.

The WHD Administrator found that the paralegals satisfy the highly compensated employee exemption because all of their duties are non-manual, they receive total annual compensation of at least $100,000, and they customarily and regularly perform at least one exempt duty of an administrative employee.

Duties. The opinion letter noted that an administrative employee’s work must be “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.” The examples provided in WHD regulations (29 C.F.R. § 541.201(b)) include “work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; … legal and regulatory compliance; and similar activities.”

Here, the paralegals perform similar work, including keeping and maintaining corporate and official records, assisting the finance department with bank account matters, and budgeting, that are “directly related to management or general business operations.” Thus, the paralegals perform at least one of the duties of an exempt administrative employee. (See 29 C.F.R. § 541.200(a)(2).) Further, since these duties are among the paralegals’ “major duties and responsibilities,” the paralegals perform one or more of these exempt duties “customarily and regularly,” meaning more than occasionally. (29 C.F.R. § 541.701.) This is enough to qualify as a highly compensated employee. (See 29 C.F.R. § 541.601(c), eliminating, for highly compensated employees, “a detailed analysis of the employee’s job duties”).

It only takes one EAP duty. The opinion letter stressed that only one of the exempt paralegals’ duties must be of an executive, administrative, or professional (EAP) character, and customarily and regularly performed by the paralegals. And this one duty does not need to be the paralegals’ primary duty. “This relaxed standard applies because most of the water for the exemption is carried by the employee’s high level of compensation,” the WHD Administrator wrote, citing Smith v. Ochsner Health Sys. (353 F. Supp. 3d 483 (E.D. La. 2018) and Hicks v. Mercedes-Benz U.S. Int’l, Inc., No. 7:08-cv-0536-LSC (N.D. Ala. Apr. 30, 2012).

“Here, at least one of the paralegals’ duties and responsibilities is office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers (e.g., budgeting, auditing, assisting with finance, and legal and regulatory compliance), and is customary and regular, thereby satisfying the final element of the highly compensated employee exemption,” Stanton explained. Thus, they are exempt under a “fair reading” of FLSA Section 13(a)(1), Encino Motorcars, 138 S. Ct. at 1142, and under the DOL’s current regulations.

Rounding practices. The final July 1 opinion letter addresses permissible rounding practices for calculating an employee’s hours worked (FLSA2019-9). It responds to an inquiry about rounding practices by a non-profit organization under the Service Contract Act (SCA), which uses principles applied under the FLSA. The non-profit employs individuals with disabilities under government contracts that are subject to the SCA. It uses payroll software to calculate wages based on recorded time entries, which rounds each employee’s daily hours worked in a “neutral manner.”

Payroll software. Employees generally clock in and out for each work period using a time clock or computer; the payroll software converts the amount of time an employee records working into a numerical figure in decimal form extended out to six decimal points and then totals the converted hours (extended to six decimal points) for each work period on each working day to calculate a numerical figure for daily hours, which is also extended out to six decimal points. Next, the software rounds that number to two decimal points: if the third decimal is less than .005, the second decimal stays the same (e.g., 6.784999 hours worked rounds down to 6.78 hours); but if the third decimal is .005 or greater, the second decimal rounds up by 0.01 (e.g., 6.865000 hours worked in a work day rounds up to 6.87 hours). The software then calculates daily pay by multiplying the rounded daily hours number by the SCA prevailing wage.

FLSA and SCA compliant. The opinion letter finds that the non-profit’s method of calculating hours worked complies with FLSA regulations and is thus compliant under the SCA. The rounding practice is neutral on its face, and it also appears to average out so that the non-profit fully pays its employees for all of the time that they actually work. “Accordingly, the organization’s rounding practice ‘will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked,’” Stanton wrote, citing 29 C.F.R. § 785.48(b).

Searchable opinion letters. The DOL offers a search function that permits users to search existing opinion letters by keyword, year, topic, and a variety of other filters. The department also encourages the public to submit requests for opinion letters to WHD to obtain an opinion or to determine whether existing guidance already addresses their questions.

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