DOL Provides Clarification for Employer FLSA Compliance in Recent Opinion Letters
Orange County, Calif. (September 16, 2020) - Recently, the Department of Labor (DOL) Wage and Hour Division (WHD) issued four new opinion letters addressing the following compliance issues related to the Fair Labor Standards Act (FLSA): (1) the fluctuating workweek method for calculating overtime; (2) reimbursement for business-related expenses when an employee uses a private vehicle; (3) the applicability of the learned professional exemption; and (4) the classification of waste removal contractors under the FLSA.
Following the guidance set forth in a DOL WHD opinion letter helps an employer establish “good faith” conduct in regards to calculating an employee’s pay, potentially minimizing monetary damages available under the FLSA. Notably, the opinion letters only address the DOL’s interpretation of employer obligations under federal law. State and local wage payment laws may differ in application or interpretation.
FLSA2020-14: Clarification for Calculating Overtime Pay by the Fluctuating Workweek Method
This letter carved out an exception to the general FLSA requirement that an employer pay their nonexempt employees at 1.5x their regular rate of pay for all hours actually worked in excess of 40 in a workweek. A fluctuating workweek method may be used to compute the amount of overtime pay owed to a nonexempt employee if: (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed salary; (3) the amount of the fixed salary satisfies the applicable minimum wage rate during the week with the most hours worked; (4) a clear understanding exists between the employee and employer that the fixed salary is compensation for the total hours worked each week; and (5) the employee’s salary is sufficient to compensate for all overtime hours worked at a rate of not less than one-half the employee’s regular rate of pay for that workweek.
The DOL clarified that work hours do not have to fluctuate above and below 40 hours per workweek for an employer to use the fluctuating workweek method of calculating overtime pay. This method is appropriate even when the employee always works more than 40 hours per week. Therefore, assuming all of the other conditions set forth above are satisfied, an employee may qualify for the fluctuating workweek method, even if their hours only fluctuate in a range in excess of 40 hours per week.
FLSA2020-12: Clarification on Reimbursements for Business-Related Expenses Incurred From Employee Using Their Private Vehicle
Pursuant to this new guidance, an employer violates the FLSA in any workweek that an employee’s wages fall below the federal minimum wage for non-overtime hours after expenses for use of a personal vehicle are deducted.
The DOL makes clear that employers are permitted to reimburse a reasonable approximation of expenses incurred for the employer’s benefit rather than the actual amount of benefits incurred. Although the IRS business standard mileage rate is a “reasonable approximation,” employers may approximate an employee’s expenses through methods other than the IRS business standard mileage rate. However, payment for expenses incurred for the convenience of the employer must be the same or less than the maximum reimbursement payment permitted by the IRS rate. Reimbursement in excess of this rate will factor into an employee’s regular rate of pay calculation.
The DOL also addressed whether an employer is required to reimburse the employee for fixed vehicle expenses. The analysis turns on whether the employee incurs the expense of owning and operating a vehicle primarily for the employer’s own benefit or for their own benefit. Employers are expected to reimburse employees for fixed vehicle expenses only to the extent the employee uses the vehicle as a tool of the trade, i.e., primarily for the benefit of his or her employer. When the employee’s vehicle is not solely a tool of the trade, employers would be required to reimburse only costs that vary with the amount the employee uses or drives the car.
FLSA2020-13: Clarification for the Professional Exemption
The DOL clarified that part-time employees, who are paid based on the time worked, do not meet the requirements of the learned professional exemption or highly compensated individual exemption. The DOL examined a scenario where part-time employees were provided corporate-management training and paid a day rate of $1,500 with additional hourly compensation. The employees’ work was “almost exclusively part time, though some work[ed] on a nearly full-time basis and others work[ed] as few as 15 days per year.” The employees were also described as highly educated with advanced knowledge in business finance and adult education, such as a master’s degree or Ph.D. They were paid “from time to time” a flat daily rate of $1,500 for each day they worked (i.e., “delivery of work”); however, they were not paid during weeks where no work was performed.
Under the FLSA, an exempt professional is exempt from overtime pay requirements. To qualify as an exempt professional, the employee must: (1) meet the salary basis test; (2) receive a salary of at least $684 per week; and (3) meet the professional duties test. An alternative to this three-part test is the highly compensated employee test, where an employee qualifies as exempt if they customarily and regularly perform at least one professional duty and receive total annual compensation of at least $107,432.
Although the DOL found that the employees at issue met the professional duties test, they did not meet the salary basis test. To satisfy the salary basis test, an employee must receive a predetermined amount each pay period (which can be all or part of the employee’s weekly compensation) that is not subject to reduction because of the variations in the quantity or quality of work performed.
The DOL reasoned that the payments for “delivery work” did not satisfy the salary basis test because it was not a “predetermined amount” as required under the salary basis test. Rather, the employees received compensation in an amount contingent on the number of days worked each week. The DOL further clarified that when employees are paid on a daily rate, they are paid “with,” not “without,” “regard to the number of days or hours worked,” which directly conflicts with the plain language of the salary basis test. To that end, the DOL concluded that payments to part-time employees tied to hours worked do not satisfy the highly compensated employee test.
FLSA2020-11: Waste Removal Services May Qualify as a “Retail or Service Establishment” Eligible to Claim 29 U.S.C. § 207(i) Exemption
Until recently, the DOL included “waste removal contractors” among a list of establishments that categorically could not qualify for employee exemptions to overtime pay requirements as a “retail or service establishment” because they lacked a retail concept. On May 19, 2020, the DOL withdrew that list, in part. With the withdrawal of the list, the DOL now applies the same analysis to all establishments to determine the existence of a “retail concept.” Waste removal services are no longer categorically prohibited from qualifying as a “retail or service establishment.”
The relevant FLSA exemption, under which waste management contractors will now be evaluated, applies to any employee (1) who works at a retail or service establishment; (2) whose regular rate exceeds 1.5x the federal minimum wage; and (3) whose earnings in a representative period are composed of more than 50% commissions.
To qualify as a retail or service establishment, the following three-pronged test must be satisfied: (1) A business must engage in the making of sales of goods or services; (2) 75% of the establishment’s sales must be recognized by the industry as retail; and (3) not more than 25% of its sales of goods or services, or of both, may be sales for resale.
For more information on these opinion letters, contact the author of this alert. Visit our Labor & Employment Practice page for more alerts in this area.
Jessica Ewert, Associate
Thalia S. Rofos, Associate