The U.S. Department of Labor’s Wage and Hour Division (WHD) released three new opinion letters last week that address various compliance requirements under the Fair Labor Standards Act (FLSA). In its accompanying press release, the Department of Labor (DOL) reminded readers that an opinion letter is the DOL’s official opinion “on how a particular law applies in specific circumstances presented by the entity requesting the letter.” Opinion letters also provide general guidance for employers on complying with federal labor laws and are official statements of agency policy.
Paralegals may be exempt from overtime under the "highly compensated employee" exemption. In opinion letter FLSA2019-8, the WHD confirmed that the highly compensated employee exemption may be applied to paralegals and it distinguished its earlier opinion letters that provided certain paralegals were non-exempt employees. The paralegals at issue are employed by a global trade organization and are paid on salary basis an annual salary of at least $100,000, which includes at least $455 per week. The paralegals perform no manual labor and have office duties including tasks such as keeping and maintaining records, assisting the finance department, assisting with annual audits, preparing legal department training seminars, and assisting with trademark submissions.
The WHD reviewed the requirements for application of the highly compensated employee exemption:
- the employee’s "primary duty includes performing office or non-manual work;"
- the employee receives total annual compensation of at least $100,000; and
- 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.
The WHD concluded that because the paralegals’ duties are non-manual, their total annual compensation is in excess of $100,000, and they perform at least one exempt duty of an administrative employee, the requirements for exemption as a highly compensated employee were satisfied.
The WHD emphasized that "only one of the exempt paralegals’ duties must be of an executive, administrative, or professional character, and customarily and regularly performed by the paralegals—and that one duty does not need to be the paralegals’ primary duty." This "relaxed" duties test can be applied for purposes of the highly compensated employee exemption precisely because of the high level of compensation required for that exemption.
Fixed percentage, nondiscretionary bonuses that are determined based on both straight-time and overtime wages do not require recalculation of the weekly regular rate for proper payment of overtime on the bonus amount. In opinion letter FLSA2019-7, the WHD addressed the somewhat technical treatment of fixed percentage nondiscretionary bonuses in the determination of the weekly regular rate for purposes of overtime pay calculations.
The question presented to the DOL was whether a particular employer was appropriately paying overtime on both an annual bonus and a quarterly bonus. Each bonus was paid under the terms of a collective bargaining agreement. The quarterly bonus consists of: (1) 15% of the contractual straight-time hourly rate for each hour the employee earns a straight-time rate; (2) 22.5% (1.5 x 15%) of the contractual straight-time hourly rate for each hour the employee earns a time-and-one-half rate; and (3) 18.75% (1.25 x 15%) of the employee’s contractual straight-time hourly rate for each hour the employee earns a double-time rate. The annual bonus is 1% of the journey straight-time rate for 2,080 hours.
At the end of each bonus period, the employer was retrospectively recalculating the weekly regular rates for each bonus period to include the bonus earnings and paying the employee the difference in overtime compensation at the end of each bonus period. And, the employer was averaging the bonus earnings across the workweeks of the bonus period instead of using the actual bonus earnings in a given workweek.
Under the applicable regulations, if a bonus is earned over a period of time longer than a workweek, an employer may “disregard the bonus in calculating the regular hourly rate until such time as the amount of the bonus can be ascertained.” 29 C.F.R. § 778.209(a). When the amount of the bonus is known, “it must be apportioned back over the workweeks in which it may be said to have been earned,” and the employee is then entitled to additional compensation for each workweek in which the employee worked overtime. 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, some other reasonable and equitable method of allocation [such as averaging] must be adopted.” 29 C.F.R. § 778.209(b). A percentage of total earnings (straight-time and overtime) as the bonus will satisfy the overtime requirements of the FLSA and no recalculation is required. 29 C.F.R. § 778.210.
Based on the facts presented in the opinion letter, the WHD determined that, because the employer pays the quarterly percentage bonus on both the straight-time and overtime wages, the employer is not required to recalculate the regular rate for each workweek in the bonus period to include the quarterly bonus. However, the annual bonus “is not tied to straight-time or overtime hours actually worked,” but instead is a fixed percent of only the straight-time pay for a certain number of hours. The employer should recalculate the regular rate for each workweek in the bonus period and pay the overtime that would be due on the annual bonus. Further, because the employer “could readily ascertain the proportionate amount of the annual bonus that is earned in each workweek,” the employer could not average the bonus earnings over all the weeks in the bonus period, but instead should include the “exact proportionate amounts in the regular rate for each workweek.”
Neutral rounding of time is permissible under the FLSA to determine hours worked. In opinion letter FLSA2019-9, the WHD determined that the rounding practice used by a particular organization subject to the Service Contract Act was permissible and consistent with the requirements of the FLSA.
The Service Contract Act provides that federal contractors should calculate hours worked by using FLSA principles. The organization asking for the opinion letter used payroll software that rounded the hours an employee worked to two decimal points.
The WHD stated, “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.” The organization’s use of the payroll software that rounded time as described in the opinion letter, "'will not result, over a period of time, in failing to compensate the employees properly for all the time they have actually worked.’ 29 C.F.R. § 785.48(b).” Thus, the rounding was consistent with the requirements of the FLSA and therefore compliant under the Service Contract Act.
If you have any questions about the new opinion letters, please contact the Smith Anderson lawyer with whom you normally work.