DOL Issues New Opinion Letters Regarding FLSA Compliance

Labor & Employment @lert

Date: July 10, 2019

The U.S. Department of Labor (DOL) issued new opinion letters in July 2019. These letters address:

1. Whether the Fair Labor Standards Act (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 employee’s regular rate of pay for each workweek – and 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?

2. What is a permissible rounding practice under the FLSA to determine hours worked?

In connection with the first opinion letter, the DOL addressed a situation where an employer, under the terms of a collective bargaining agreement, paid a quarterly bonus and an annual qualification bonus based upon fixed percentages of straight-time rate and journey straight-time rate, respectively. Once the bonuses were paid, the employer then retrospectively recalculated the weekly regularly rates for the bonus period to include the bonus and paid the differences in overtime compensation to the employee as part of the bonus. The issue for the DOL was whether or not that was appropriate. The DOL answered in the affirmative, finding that an employer may retrospectively base a nondiscretionary bonus on work performed during multiple workweeks and pay the bonus at the end of the bonus period. When doing so, the employer may disregard the bonus when computing the regular hourly rate until the amount of the bonus becomes ascertainable. Once it becomes ascertainable, the employer then must retrospectively recalculate the regular rate for each workweek in the bonus period and pay the additional overtime compensation due on the bonus. 29 C.F.R. § 778.209. The DOL further found that based on the facts that it considered for purposes of this opinion letter, an employer, after paying the quarterly percentage bonus based upon straight-time and overtime wages, need not recalculate the regular rate for each workweek in the bonus period to include this quarterly bonus because the paid bonus simultaneously included all overtime compensation due on the bonus as an arithmetic fact. See 29 C.F.R. §§ 778.210, 778.503.

In connection with the second opinion letter, the DOL considered an organization’s rounding policy under the Services Contract Act (SCA), which adheres to principles applied under the FLSA. In that case, the employees generally clocked in and out for each work period using a time clock or computer where payroll software converted the amount of time an employee recorded working in each work period into a numerical figure in decimal form extended out to six decimal places. The payroll software then totaled the converted hours (extended to six decimal places) for each work period on each working day to calculate a numerical figure for daily hours, which is also extended out to six decimal places. Next, the software rounds that number to two decimal places, where if the third decimal is less than 0.005, the second decimal stays the same (e.g., 6.784999 hours worked rounds down to 6.78 hours), but if the third decimal is 0.005 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). Finally, the software calculates daily pay by multiplying the rounded daily hours number by the SCA prevailing wage.

The DOL opined that it is acceptable for employers to round time in determining employees’ hours worked, provided that doing so “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” 29 C.F.R. § 785.48(b). The DOL found that rounding to the nearest five minutes, one‑tenth of an hour, one-quarter of an hour or one-half hour is acceptable as long as the rounding averages out so that the employees are compensated for all the time they actually work. Based on the facts considered for the second opinion letter, the FLSA opined that this particular organization’s method of calculating hours worked complies with FLSA regulations and is therefore compliant under the SCA.

FOR MORE INFORMATION

If you would like more information, please contact:

Nancy M. Barnes
216.566.5578
Nancy.Barnes@ThompsonHine.com

M. Scott Young
513.352.6617
Scott.Young@ThompsonHine.com

or any member of our Labor & Employment group.

Ricardo Hill (University of Cincinnati College of Law, ’21) contributed significantly to this update. Ricardo is a Thompson Hine summer law clerk; he is not admitted to the practice of law. Please contact Julia Zerman to learn more about our summer program.

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