The letters address overtime pay calculation in light of a nondiscretionary bonus for completing training, whether a health district must count county employees for FMLA eligibility purposes, and whether per-project payments satisfy the salary basis test for exemption.
On January 7, 2020, the Department of Labor released three new opinion letters—the 51st, 52nd and 53rd of the Trump Administration—addressing compliance issues related to overtime under the Fair Labor Standards Act and eligibility under the Family and Medical Leave Act. The letters, signed by Administrator Cheryl M. Stanton, are official written opinions by the Wage and Hour Division on how a particular law applies in the specific circumstances presented by the person or entity requesting the letter.
Calculating OT pay in light of nondiscretionary bonus. The opinion in FLSA2020-1 addresses the calculation of overtime pay for a nondiscretionary lump-sum bonus paid at the end of a multi-week training period. In the scenario presented, the employer informs employees in advance that they will be eligible to receive a lump-sum bonus of $3,000 if they successfully complete 10 weeks of training and agree to continue training for an additional eight weeks. The bonus is nondiscretionary, but the employee does not have to complete the additional eight weeks of training in order to retain the lump-sum bonus.
The question relates to an employee who works 40 hours per week during eight weeks of the 10-week training period, but works 47 hours in week five, and in week nine, works 48 hours. Under 29 C.F.R. § 778.209(b) there are two methods of computing overtime pay for bonus earnings that cannot be identified with particular workweeks. Which method should be used to calculate the overtime payments resulting from the nondiscretionary lump-sum bonus in this case?
Must be included in regular rate. At the threshold, Stanton noted that the lump-sum bonus paid to employees must be included in the regular rate of pay “as it is an inducement for employees to complete the ten-week training period.” Further, because the employer pays the lump-sum bonus to employees for completing the 10-week training and for agreeing to additional training, without having to finish the additional training, the lump-sum bonus amount must be allocated to the initial 10-week training period.
Equal allocation. Further, it is appropriate for the employer to allocate the lump-sum bonus of $3,000 equally to each week of the 10-week training period. Each of the 10 weeks counts equally in meeting the criteria for receiving the lump-sum bonus because missing any week (no matter whether overtime is worked in that week) disqualifies the employee from receiving the lump-sum bonus. The employer then must calculate the additional overtime pay due in those workweeks of the 10-week training period in which the employee worked more than 40 hours.
Counting employees to determine FMLA eligibility. In opinion FMLA2020-1-A, Stanton addresses the question whether a combined general health district must count the employees of the county in which the health district is located for the purpose of determining FMLA eligibility for its employees. Here, the health district and the county did not appear to be the same or single public agency employer to the extent that the health district must count county employees working within a 75-mile radius to determine whether a health district employee is eligible for FMLA leave.
Ohio law. Notably, Ohio law treats a health district as a political subdivision separate from any county or other local government agency or body. The Ohio Attorney General has issued opinions finding that health districts are entities separate from the cities, townships, or counties in which they are located. Further, under state law, a health district is able to sue and be sued in its own name, enter into contracts on its own behalf, and acquire, hold, possess, and dispose of real and personal property—all factors that indicate its independence from other public entities.
Separate entities. In this case, the health district manages its own budget and does not rely on any county funds. The county has no part in hiring, firing, or supervising the health district’s employees, and the health district’s board of directors is largely independent from the county. Moreover, health district employees do not participate in the retirement system administered by the county, although both health district and county employees may participate in a statewide retirement system. Finally, while the county auditor processes the health district’s payroll, the health district pays the auditor for this service. Together, these factors show that the health district and county are separate entities for FMLA purposes.
Although the U.S. Census Bureau classifies the health district as a subordinate agency of the county, this is just one factor under WHD regulations (29 C.F.R. § 825.108(c)(1)). Here, “the vast majority of factors, including the longstanding interpretation of Ohio state law by the courts and the state attorney general, support the conclusion that the County and health district are separate entities of the Ohio government,” Administrator Stanton wrote, concluding that “the health district and the County do not appear to be a single public agency employer for the purpose of determining FMLA eligibility.”
Per-project payments and salary basis test. In opinion FLSA2020-2, Stanton discusses whether per-project payments satisfy the salary basis test for exemption. The question is whether proposed payments to educational consultants amount to payments on a fee basis or salary basis under Section 13(a)(1) of the FLSA and applicable regulations.
Example 1. In the first of the two examples of proposed payment methods, the salary basis requirement is satisfied. For developing a new literacy curriculum, the educational consultant will receive a predetermined amount in 20 biweekly installments paid throughout the district’s academic year. The payment amounts will not vary from week to week or month to month based on the number of hours worked by the consultant on the project and, and presumably, they will not vary based on the quality of work performed. Other requirements of 29 C.F.R. § 541.602, including the restrictions on deductions, are presumably met. Accordingly, “this payment structure satisfies the requirement that employees be paid a ‘predetermined amount constituting all or part of the employee’s compensation’ paid weekly or less frequently, provided the payments are not subject to reduction because of variations in the quality or quantity of work performed,” Stanton wrote.
Example 2. The second example also complies with the regulations. Here, the same educational consultant is assigned to a second eight-week assignment while continuing to work on the original assignment. For completing the second project, in addition to payments received for work on the first project, the consultant will be paid $6,000 in four $1,500 biweekly installments, totaling $5,500 per pay period during the eight weeks in which the projects overlap. The payments for the second project also satisfy the requirements as “extra” compensation under the regulations. “The ‘additional compensation may be paid on any basis,’ such as a flat sum, bonus, or hourly amount, and may be paid for ‘hours worked for work beyond the normal work week,’” Stanton said, citing 29 C.F.R. § 541.604(a).
Here, the employee is already paid on a bona fide salary basis that is presumably not subject to improper deductions. The additional compensation—even in the form of a weekly lump sum—is paid for additional work beyond the normal workweek (work beyond the scope of the first project) and can be paid on any basis. Because the employee’s underlying compensation is not computed on an hourly, daily, or shift basis, the reasonable relationship requirement does not apply. Accordingly, the additional payment for the second project may be made without changing the employee’s exempt status.
Total compensation fluctuations. The fact that the total compensation amount (i.e., salary plus additional payments) might change several times throughout the year, depending on the projects to which the educational consultant is assigned, does not change the conclusion, provided that the employee’s compensation satisfies the salary basis and extra compensation requirements.
Prospective changes. There are some occasions under which the customer and the company determine that the scope of a project should be changed prospectively, such that the employee’s per-project pay—and, therefore, the amount of the employee’s biweekly payment going forward—may be increased or decreased. However, these changes do not necessarily defeat the salary basis exemption provided the revised biweekly payment meets the minimum threshold.
The WHD “has long found that employers do not violate the salary basis test by prospectively reducing the salaries of exempt employees under certain conditions,” Stanton pointed out. But an employee’s exempt status may be undermined where “the employer and customer engage in such frequent revisions to the contract that the amount of the employee’s biweekly compensation for a certain project is rarely the same from pay period to pay period and the circumstances suggest the amount of the payment is, in fact, actually based on the quantity or quality of work performed.
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