While these Opinion Letters are not law and courts are not bound by them, they do provide guidance as to acceptable compliance and time-keeping processes for companies in analogous situations.
The U.S. Department of Labor (DOL), through its Wage and Hour Division (WHD), issued three Opinion Letters on July 1, 2019, that address various compliance issues under the Fair Labor Standards Act (FLSA). These Opinion Letters are the first to be published under current Wage and Hour Administrator Cheryl Stanton, who began her term in April 2019. They address: (1) the applicability of the highly compensated employee exemption for paralegals; (2) the calculation of overtime pay for non-discretionary bonuses; and (3) permissible rounding practices in recording employees’ hours worked.
Paralegals Exempted as Highly Compensated Employees Based on More Than Occasional Handling of Exempt Function
Opinion Letter FLSA2019-8 analyzed the exempt status of paralegals who earned an annual salary of at least $100,000 and who, as part of their jobs, did a variety of job duties that might be considered typical for paralegals (customized to a particular company’s business and needs), such as: keeping and maintaining records; preparing and submitting required government reports; assisting with trademark, accounting and real estate matters; preparing legal department trainings; and working with outside counsel.
The Opinion Letter noted that the WHD will give a “fair (rather than narrow) interpretation” of the FLSA’s exemptions and then analyzed the applicability of the administrative exemption to the paralegal position. To be exempt under the administrative exemption requires an employee: (1) be compensated on a salary or fee basis of at least $455 per week; (2) have as a primary duty work that is “office or non-manual work directly related to the management or general business operations of the employer”; and (3) have a primary duty that includes “the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a).
Further, for an employee to qualify for the highly compensated exemption, an employer must show that the employee: (1) has a primary duty that involves office or non-manual work; (2) receives a total of at least $100,000 in annual compensation; and (3) “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 Opinion Letter noted that the third prong can be satisfied if the employee performs one or more exempt duties “more than occasionally” – which is a looser standard for highly compensated employees than for other employees.
Given that the paralegals here were highly compensated and did customary non-manual work directly related to the management or general business operation of the company (e.g., assisting with finance, regulatory compliance and legal), the WHD concluded that a “fair reading” of the FLSA exemptions would find they are properly classified as exempt.
Recalculation of Regular Rates and Overtime After Payment of a Non-Discretionary Bonus
Addressing a more technical question in Opinion Letter FLSA2019-7, the WHD stated that an employer must recalculate an employee’s regular rate of pay for purposes of overtime compensation after a non-discretionary bonus is paid based on an employee’s hours during the time period at issue.
The situation presented to the WHD involved employees who were paid a quarterly and annual bonus under the terms of a collective bargaining agreement. Both bonuses were based on fixed percentages of an employee’s wages during the quarter or year. (The quarterly bonus reflected a percentage of the employee’s straight-time hours and overtime hours. The annual bonus was a fixed percentage of the employee’s straight-time hourly rate for a set number of hours.) After the employer paid the quarterly and annual bonuses, it retrospectively recalculated the weekly regular rates of pay for the bonus period to include the bonus earnings and then paid any difference owed to the employee for any overtime compensation during that time period. The WHD was asked to review this practice and determine if it was acceptable.
The Opinion Letter noted that non-discretionary bonuses (which include a bonus that stems from a collective bargaining agreement) must be included in the calculation of an employee’s regular rate of pay in determining overtime compensation. An employer may base a non-discretionary bonus on work performed during multiple workweeks and pay the bonus at the end of the bonus period, “disregard[ing] the bonus in computing the regular hourly rate until such time as the amount of the bonus can be ascertained.” 29 C.F.R. § 778.209(a). Once the amount of the bonus is known, the employer must retrospectively recalculate the regular rate for each workweek in the bonus period and pay the additional overtime compensation due on the bonus.
Based on the particular calculation of the two bonuses at issue, the WHD found that the quarterly bonus – which was based on a percentage of all the earnings – already took into account the employee’s straight-time and overtime wages for the weeks at issue. Therefore, no recalculation of the regular rate was needed – the employer simply needed to determine if additional compensation was owed to the employee based upon the bonus payout. For the annual bonus at issue, the employer must, after ascertaining the bonus amount, retrospectively recalculate the regular rate and pay any additional overtime compensation owed during the year. Since the employer was already doing this, the WHD found its practice to be acceptable.
Reminder That Neutral Rounding of Hours Is Permissible
Finally, in another Opinion Letter, FLSA2019-9, the WHD approved an employer’s use of a software program that rounded the amount of time employees worked to two decimal points to calculate their pay. It is acceptable for employers to round time in determining an employee’s hours worked, provided that doing so “will not result, over a period of time, in failure to compensate the employees properly for all time they have actually worked.” 29 C.F.R. § 785.48(b). The Opinion Letter noted that it has been DOL policy to accept rounding “as long as the rounding averages out so that employees are compensated for all time they actually work.” The WHD concluded that the employer’s software system at issue here was neutral (i.e., it rounded up and rounded down based on a pre-designated rounding point) and, therefore, appeared that it would average out and meet the above requirements of the FLSA.
What This Means for Employers
While these Opinion Letters are not law and courts are not bound by them, they do provide guidance as to acceptable compliance and time-keeping processes for companies in analogous situations.
Employers should consider regular review of their job descriptions and an analysis of employee job duties to make sure employees are properly classified as exempt or non-exempt. For highly compensated employees, the factors for exemption may be looser, but proper analysis remains important to avoid the risks of misclassification. Employers should also ensure compliance with state wage and hour laws and note, in particular, that some states do not recognize a highly compensated exemption.
With regard to overtime, employers should be sure that any pay system properly takes into account the payment of any non-discretionary bonus and retrospectively recalculates employees’ regular rates of pay during the bonus time period. Employers are also reminded to be sure that time-keeping systems round time in an appropriate manner consistent with FLSA regulations.
FLSA wage and hour issues are complex, and penalties for violations tend to be significant. Therefore, employers are advised to consult with counsel to conduct regular self-audits and to be sure that internal pay processes are being carried out in permissible ways. Regular review of these areas will help ensure that risks are mitigated as best as possible.
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