On July 1, 2019, the U.S. Department of Labor (“DOL”) Wage and Hour Division issued a trio of fact-specific opinion letters offering employers guidance on various pay practices, specifically relating to calculating overtime pay as part of nondiscretionary bonuses, exemptions for paralegals, and rounding practices for calculating hours worked.
Calculating Overtime Pay for Nondiscretionary Bonuses
In FLSA2019-7, the DOL considers a technical question involving the calculation of overtime pay as part of annual and quarterly nondiscretionary bonuses. The DOL explains that, based on the information provided, the employer should recalculate the regular rate for each workweek in the bonus period after paying the annual bonus and then 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 determine the weekly amount of the bonus at the end of the bonus period. Because the employer can determine the proportionate amount of the annual bonus the employees earn in each work week, in making the recalculation, the employer should retroactively include those exact proportionate amounts in the regular rate for each workweek. Employers that offer nondiscretionary bonuses to their non-exempt employees are encouraged to consult counsel to ensure that their overtime calculations comply with DOL requirements.
Highly Compensated Paralegals
Next, in FLSA2019-8, the DOL examines whether highly paid paralegals for a global trade organization are exempt from minimum wage and overtime requirements under Section 13(a)(1) of the Fair Labor Standards Act (“FLSA”). For an employee to qualify under the highly compensated exemption to the FLSA, the employee’s main duty must include performing office or non-manual work, and the employee must receive total annual compensation of at least $100,000. (Note, the DOL is in the process of revising these regulations to increase the compensation threshold. If enacted in their current proposed form, the salary basis threshold for highly compensated employees would jump to $147,414.) Further, the employee must “customarily and regularly” perform any one or more of the exempt duties of an executive, administrative, or professional employee.
Based on the foregoing, the DOL opines that the paralegals described in the letter are overtime-exempt under the FLSA Section 13(a)(1) exemption because they perform only non-manual duties, their compensation meets the minimum threshold, and they perform at least one of the duties of an exempt administrative employee. The DOL explains that the paralegals in question perform one or more of the exempt duties “more than occasionally” and thus satisfy the “customarily and regularly” standard. In addition, the DOL distinguishes these paralegals from other paralegals from past letters in which the DOL found that paralegals generally should be provided overtime pay. The DOL reasons that most of those letters relied exclusively on a finding that the primary duty of the paralegals in those cases did not include the exercise of discretion and independent judgment with respect to matters of significance, whereas here, under the highly compensated employee exception, that element did not need to be satisfied because of their very substantial annual earnings and performance of non-manual labor. Employers with in-house legal departments that employ highly compensated paralegals are advised to review their salaries and duties to determine whether they may qualify for the overtime exemption.
Rounding Practices to Determine Hours Worked
Finally, in FLSA2019-9, the DOL considers whether an organization’s rounding practices are permissible under the Service Contract Act (“SCA”), which uses principles applied under the FLSA to determine employees’ hours worked. The organization in question represented that its payroll software rounds each employee’s daily hours worked in a neutral manner. Specifically, the software rounds employees’ hours to two decimal places from six, rounding up when the third decimal is five or higher.
Generally, the SCA requires government contractors to satisfy specific minimum compensation requirements for employees under covered contracts. The FLSA’s regulations acknowledge that it is common and may be appropriate for employers to round time in determining an employee’s hours worked, as long as 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.” The DOL’s policy has been to accept rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour, provided the rounding averages out so that the employee is fully compensated for the amount of time they actually worked.
Ultimately, the DOL agrees that the practice was “neutral on its face” and concludes that this method averages out so that the employer fully pays its employees for all the time they actually worked. Therefore, the DOL opines that this rounding practice complies with the FLSA regulations and thus is acceptable under the SCA.
Although all three of these opinion letters are fact-specific and narrow in their application, they provide nuanced guidance for similarly situated employers with comparable pay practices. Employers are encouraged to regularly audit their pay practices in consultation with counsel.