The best answer to our May 8, 2013 Quick Quiz is, "$110.00".  In declining percentage order, the responses were:

"None":          (80.4%)

"$110.00":     (15.7%)

"$137.50":     (3.9%)

"$412.50":     (0.0%)

Does The FLSA Allow Day-Rate Plans?

The federal Fair Labor Standards Act does permit employers to pay non-exempt workers on a day-rate basis.  See 29 C.F.R. § 778.112.  Under this approach, employees receive a fixed amount of daily pay for each workday on which they perform any work, regardless of the number of hours worked in the workday.  The day-rate payments represent straight-time compensation for all work done in the workweek, both those hours worked up to 40 and those worked over 40.

But the point we intended to illustrate is that a day-rate payment cannot "include" or "build in" any FLSA overtime premium pay, no matter how the day-rate sum was set.  Cf. 29 C.F.R. §§ 778.310, 778.500.  When a day-rate employee works more than 40 hours in a workweek, he or she must receive FLSA overtime premium pay in addition to the total day-rate wages for the workweek.  Figuring the overtime amount due begins with the proper computation of the FLSA regular hourly rate of pay.

Because the employee's total day-rate pay is remuneration for all hours worked in the workweek, the regular rate is determined by dividing the person's total day-rate compensation for the workweek by his or her total hours worked in that workweek.  Of course, this regular rate can never be less than the FLSA minimum wage (or any higher required rate).  This also assumes that the employee has received no other compensation that must be included in the regular rate.

The total day-rate pay is compensation for both straight-time and overtime hours (in other words, it is the "one" of "one and one-half").  Therefore, the employee is due an additional 50% of the regular rate times the FLSA overtime hours worked.

How Is Technician Tom's Total Pay Determined?

For these reasons, Technician Tom is due additional FLSA overtime premium pay for his ten overtime hours worked, despite how his day-rate payment was established.  The overtime amount is calculated this way:

($1,100 Day-Rate Pay) ÷ (50 Hrs.) = $22.00 Per Hr. Regular Rate

($22.00 Per Hr. × 50%) = $11.00 Per Hr. OT Premium Rate

($11.00 Per Hr.) × (10 OT Hrs.) = $110.00 OT Premium Due.

Technician Tom's total pay for the workweek is therefore ($1,100.00 + $110.00) = $1,210.00.  If he had instead worked 45 hours in the workweek, then his total pay would have been:

($1,100 Day-Rate Pay) ÷ (45 Hrs.) = $24.44 Per Hr. Regular Rate

($24.44 Per Hr. × 50%) = $12.22 Per Hr. OT Premium Rate

($12.22 Per Hr.) × (5 OT Hrs.) = $61.10 OT Premium Due.

($1,100 + $61.10) = $1,161.10.

As always, employers must also take into account the relevant requirements of different laws and the laws of other jurisdictions. It is important to ensure that whatever overtime computation the employer uses complies with all of the applicable overtime provisions.

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The Big Corporation decides that it will start paying its Field Service Technicians on a day-rate basis, instead of on an hourly basis.  Under the day-rate plan, a Technician will now receive a fixed amount of money for each workday in which he or she performs any work, regardless of the number of hours the Technician works in the workday.  The day-rate payments represent compensation for all hours worked in a workday and in a workweek.

A Technician's schedule is to work ten hours a day, five days a week.  Management therefore sets each Technician's day-rate payment based upon (i) eight hours times the Technician's hourly rate at the time of the change, plus (ii) 1.5 times that hourly rate times two hours.  For example, Technician Tom's day-rate sum is set at [($20 × 8 hrs.) + ($20 × 2 hrs. × 1.5) = $220.

During the first workweek under the new plan, Technician Tom performs work on five workdays and works exactly 50 hours, for total day-rate pay of (5 days × $220) = $1,100.  How much more must The Big Corporation pay Tom in order to comply with the federal Fair Labor Standards Act?

Please use the poll buttons to the right to register your answer.

The U.S. House of Representatives will consider amending the federal Fair Labor Standards Act to permit private-sector employers to offer compensatory time off in lieu of monetary overtime compensation.  The fast-tracked "Working Families Flexibility Act of 2013" (H.R. 1406) was approved by a House committee only eight days after its introduction.

Under the proposal, eligible non-union employees could agree to a comp-time arrangement "in writing or [in an] otherwise verifiable record."  The policy could be implemented for eligible unionized employees via a collective bargaining agreement.  Participating employees would then receive at least 1.5 hours of comp time for each overtime hour worked.

The Devil Is In The Details

Private-sector employers are understandably cheered by such news – comp time has been a long-sought goal.  But the bill contains a number of impact-diluting, unclear, or complicating provisions, including these examples:

♦   No more than 160 hours of comp time could be accrued at any time (representing approximately 106 overtime hours worked).  An employee who works 10 overtime hours each workweek would reach that cap in about 10 workweeks.

♦   Employers would be required to cash-out unused comp time annually and when a worker's employment ends.  The payment would be calculated at the higher of (i) the employee's regular rate at the time the comp time was earned, or (ii) the employee's final regular rate.  But the "regular rate" is not necessarily just the employee's stated hourly rate.  Typically, it also includes remuneration such as bonuses, commissions, incentive payments, and compensation of many other kinds.  Figuring the "regular rate" for cashing-out purposes could therefore be a complex and daunting process as to employees who received such supplemental compensation over a period of time.

♦   On 30 days' notice, an employer could cash-out a worker's accrued comp time exceeding 80 hours.  But this too must be based upon the "regular rate" and entails the same potential complications.  Maybe the payment would normally be based upon the regular rate when the comp time was earned, unless the alternative "final regular rate" is later read to have some broader-than-apparent meaning.

♦   The employer would have to (i) determine and monitor each employee's eligibility to "agree to receive" or to "receive" comp time, which apparently could change over time; (ii) compute and record the hours accrued and keep up with when the balance must be (and perhaps may be) cashed-out; and (iii) administer both employees' cash-out requests and any notices that a non-union employee opts-out of the policy (including keeping up with who's "in" and who's "out").

♦   The employee would be entitled to use comp time "within a reasonable period" after requesting it, unless this would "unduly disrupt" the employer's operations.  By contrast, the employer could not so much as "attempt to" require employees to use comp time. 

The proposal would neither instruct nor even authorize the U.S. Labor Department to issue any regulations.  Nevertheless, employers should also anticipate extensive, convoluted USDOL interpretative provisions.

Is It Better Than Nothing?

We are not convinced that it is.  Many employers will see this as being more trouble than it is worth, especially if (as the bill currently provides) it would expire in five years anyway.  Some who implement such a policy might later find themselves embroiled in litigation over its pitfalls and complexities.

Perhaps there is still time to simplify and refine the measure before it becomes the latest ineffectual minimum-wage tradeoff.

UPDATE 05/09/13:  H.R. 1406 was passed by the House of Representatives on May 8 by a vote of 223 to 204.  The Obama Administration has expressed opposition to the proposal, so one may question whether the bill will even be considered by the Senate.  On the other hand, there is still reason to surmise that the atypical speed with which H.R. 1406 has moved along means that proponents want to make it part of a bargain involving a minimum-wage increase.

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Pressure continues to mount for raising the federal Fair Labor Standards Act's minimum wage in three stages from the current $7.25 per hour to (so far) $10.10 per hour.  Under pending proposals, the rate would thereafter be subject to annual increases linked to rises in the Consumer Price Index.

Leaving aside for now questions about the wisdom of these measures, history suggests that Congressional negotiations are or soon will be underway to strike a bargain – one under which the increases will be passed in exchange for something that ostensibly alleviates some of the impact upon employers.  Experience also counsels vigilance in the interests of steering these discussions toward a tradeoff that actually has value.

The Past Should Not Be Prologue

A good example of what not to do is found in the gimmick that was proudly held up as a worthwhile exchange for the minimum-wage increases beginning in 1990.  This "training wage" temporarily allowed employers to pay 85% of the FLSA minimum wage for up to 90 days to workers less than 20 years old under a variety of restrictions and conditions.  The employee could be paid the training wage for another 90 days by a different employer under certain circumstances.

This exception was soon hamstrung by complicated U.S. Labor Department rules consuming more than 9,000 words, 41 sections, and over 15 pages in the Code of Federal Regulations.  By the time the "training wage" expired in 1993, whatever limited utility it might otherwise have had was entirely undercut by what one large employer referred to as an "administrative nightmare".

A similar provision was part of the agreement for minimum-wage hikes that began in 1996.  We have addressed the still-existing "opportunity wage" elsewhere; suffice it to say that this too has been ineffectual.

Address Matters Of Substance Instead

If there is to be a deal, especially a groundbreaking one that puts future increases on "autopilot", then it should consist of truly meaningful FLSA reform.  There are many worthy possibilities, but some we have discussed before include:

An amendment creating at least a presumption of accuracy for time records kept by non-exempt employees under a clear employer procedure requiring and facilitating accurate timekeeping;

A revision allowing employees to be deemed exempt from the FLSA's minimum-wage, overtime, and timekeeping requirements based simply upon their being paid compensation beyond a specific threshold;

A modification excluding many, most, or even all bonuses and incentive pay from the "regular rate of pay" used to compute FLSA overtime compensation; and

Raising the annual-dollar-volume threshold for FLSA "enterprise" coverage to a level higher than $500,000 (an amount set 23 years ago that equates to over $930,000 today) so as to protect small businesses from the impact of minimum-wage increases.

Another candidate would be permitting the private sector's use of compensatory time off in lieu of overtime pay.  A bill to that effect was recently introduced in the U.S. House of Representatives and has already been the subject of a committee hearing; perhaps this is in the offing as a tradeoff.  Assuming for the moment that this amendment (as filtered through the inevitable U.S. Labor Department interpretations) would be of appreciable benefit, it would expire in five years.  The proposed indexing of the minimum wage would not expire in five years; it seems ill-advised to sunset the benefit of the bargain.

Unless employers clearly and vigorously make their desires known to Congress without delay, the most that can probably be expected is something that will turn out to be as meaningless and soon-to-be-forgotten as the "training wage".

UPDATE 04/19/13:   The "comp time" bill referred to in the post, H.R. 1406, has been approved by the Committee on Education and the Workforce for consideration by the full House of Representatives.  The current version still contains the five-year "sunset" provision.

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Readers will recall that, in April 2011, the U.S. Labor Department declined to adopt an interpretation proposed in 2008 that would have acknowledged the federal Fair Labor Standards Act overtime-exempt status of employees doing the typical work of service writers, service advisors, etc. in automobile dealerships and truck dealerships.  Prospects were that USDOL would reverse an enforcement policy of two decades' standing and would begin challenging the FLSA Section 13(b)(10)(A) overtime exemption as applied to these workers.

However, Congress's 2012 Department of Labor Appropriations Act specifically prohibited USDOL from using any appropriated funds for this purpose.  Later comments by a U.S. Wage and Hour Division investigator led us to conclude that, unless Congress renewed this limitation in 2013 appropriations, dealerships should anticipate USDOL attacks on their treating these employees as being overtime-exempt.

Although the 2013 appropriation does not expressly refer to such a restriction, we conclude that the prohibition has been extended.  Among other things, Division F, Section 1105 of the recent appropriation calls for the continuation through September 30, 2013 of "the requirements, authorities, conditions, limitations, and other provisions" of the 2012 law.  Another example is Section 1104's statement that money allocated for 2013 may not be used to "initiate or resume any project or activity for which appropriations, funds, or other authority were not available" during the federal government's 2012 fiscal year.

Even if USDOL is unable to pursue such claims, current or former service writers or similar employees remain free to argue against overtime-exempt status in their own FLSA lawsuits.  And, as we said previously, employers embroiled in these lawsuits should be alert for any signs that USDOL is extending background assistance to these individuals.

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In April 2011, the U.S. Labor Department disavowed its 24-year-long acknowledgment that the federal Fair Labor Standards Act's Section 13(b)(10)(A) overtime exemption applies to automobile-dealership employees doing the typical work of service writers, service advisors, etc.  Instead, USDOL seemed to embrace the view that the absence of a literal reference to these kinds of employees in Section 13(b)(10)(A)'s "salesman, partsman, or mechanic" formulation meant that they are subject to the FLSA's overtime requirement.

USDOL said what it did despite the fact that, since the 1970s, five federal courts had looked at the same language and ruled the other way.  In fact, as of April 2011, every reported court decision to consider the issue determined that dealership employees who are selling service and parts to customers are within the exemption.  These courts concluded that this outcome was entirely consistent with Congress's intent.

Now, two additional rulings have continued this trend, including that these newest ones have done so notwithstanding USDOL's comments.

In Navarro v. Mercedes Benz of Encino (link to reproduction below), Fisher & Phillips LLP persuaded the U.S. District Court for the Central District of California to dismiss an FLSA overtime claim brought by several Service Advisors.  After evaluating USDOL's April 2011 statements, the court concluded that those views are "unreasonable" and unworthy of deference.  Instead, the court said, "Service Advisors .  .  . are functionally equivalent to salesmen and mechanics and are similarly responsible for the 'selling and servicing' of automobiles."  It ruled that the Service Advisors were exempt from FLSA overtime.

A few days later, the Montana Supreme Court concluded that the words of Section 13(b)(10)(A) itself demonstrate that it applies to the kind of work done by Service Advisors, Service Writers, and the like.  In Thompson v. J.C. Billion, Inc. (link to reproduction below), the court determined that USDOL interpretative material "conflicts with the plain wording of [Section 13(b)(10)(A)] by defining employees who are exempt from overtime as 'salesman' more narrowly than the statute does."  The court determined that "a plain, grammatical reading of [Section 13(b)(10)(A)] makes clear that the term 'salesman' encompasses a broader category of employees than those only engaged in selling vehicles," and that, "under a plain reading, the statute clearly exempts 'any salesman . . . primarily engaged in servicing . . . automobiles."

These decisions further bolster the decades-old proposition that the exemption applies to a dealership employee whose primary duty is to do such things as greet customers and obtain information regarding their service or repair concerns; diagnose the mechanical condition of the vehicle; attempt to sell appropriate diagnostic or repair services; provide estimates for services or repairs; write orders for work authorized by the customer; assign the work to various employees; direct and check on the work of mechanics; and communicate with customers regarding the status of their vehicles.  Only time will tell whether USDOL will continue to swim against the tide of these court rulings.

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Navarro v. Mercedes Benz of Encino.pdf (397.31 kb)

Thompson v. J.C. Billion, Inc.pdf (146.23 kb)

The best answer to our January 9 Quick Quiz is, "$200".  In declining percentage order, the responses were:

"$200":       (45.1%)

"None":       (25.3%)

"$33.75":    (19.8%)

"$30":         (9.8%)

It is not necessary to restrict the sum recovered to 45 hours times the ($8.00 − $7.25) = 75-cent "cushion" over the federal Fair Labor Standards Act's minimum wage (the rationale leading to the "$33.75" answer) or to 40 hours times that "cushion" (the rationale leading to the "$30" answer).  Neither does the FLSA prohibit Gloria's employer from recouping any of the loan.

Why Isn't There A Limit?

The U.S. Labor Department has long said that, where an employer has made a bona fide loan or wage advance to an employee (such as the one in our Quick Quiz), the full amount of the principal may be deducted from the employee's wages, even if this deduction cuts-into the FLSA minimum wages or overtime compensation that would otherwise be required for the workweek.  One way to think of it is that there is no "deduction" being made in the usual sense of the word:  Gloria's employer is instead simply taking credit for the wages it paid to her before they were due.

However, this concept does not extend to any employer add-ons like interest payments or administrative costs such as "processing fees", "bookkeeping costs" or similar sums over and above the principal amount of the loan or advance.  Amounts like these cannot be deducted (or otherwise paid by the employee) to the extent that they cut into the FLSA-required minimum-wage or overtime compensation.

Furthermore, deductions or other employee payments that the FLSA otherwise constrains do not become lawful just by calling them "loans" or "advances".  For example, an employer may not circumvent FLSA-related limitations upon the costs or financial burdens imposed upon a worker for required uniforms, tools or equipment required to do the work, or cash or inventory shortages simply by saying that it will "loan" the employee the necessary amount.

There is no FLSA requirement that the existence of the loan or advance or the repayment arrangements be reduced to writing.  Nevertheless, it is advisable to prepare a written understanding or agreement of some kind in order to head-off potential disputes about the nature of what was done.

There Could Be Non-FLSA Restrictions

Keep in mind that state or local provisions might impose prohibitions, limitations, or requirements in this area that the FLSA does not.

For instance, until recently, New York did not permit employers to recover any portion of a loan or advance from a worker's wages.  Even now, these undertakings are to be handled subject to restrictions on the timing, frequency, duration, method, and periodic amount of repayments and must meet a host of other requirements and procedures.

Employers must be certain that they know about, understand, and comply with ALL potentially-applicable requirements and limitations where employee loans or advances are concerned.

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Gloria is a stock clerk for The Warehouse Company.  She is paid on an hourly basis at the rate of $8.00 per hour.

Gloria experiences a personal financial emergency.  She asks her employer for an advance of $200.  Her employer agrees to loan her this amount, on the condition that she must pay it back in full on the next weekly payday.  She agrees to this and also consents to the employer's recovering the advance through a deduction from her wages.

In the following workweek, Gloria works 45 hours.  For purposes of the federal Fair Labor Standards Act, what is the maximum amount of the loan that Gloria's employer is permitted to deduct from her wages for that workweek?

Recent reports have described more than one scenario in which an employer violated the federal Fair Labor Standards Act because management failed to recognize that non-exempt employees' hours worked over 40 in a workweek were overtime ones.  The employees had performed their work in more than one position during the week, such that their time spent in any particular job did not exceed 40 hours.  However, an employee's hours worked in all of the positions in which he or she was engaged for the employer in the week totaled more than 40.
 
For example, one set of circumstances involved non-exempt restaurant employees.  Several of them typically worked around 25 hours as kitchen assistants for part of a week and about 20 hours as waitstaff at other times in the week.  Because no such employee worked more than 40 hours either as a kitchen assistant or as waitstaff member when the positions were viewed separately, the employer did not consider any of their (25 hrs. + 20 hrs.) = 45 total hours worked to be FLSA overtime.
 
The threshold for FLSA overtime wages is not applied job-by-job.  Instead, the FLSA requires that all of an employee's hours worked for the employer in every job be combined to determine whether the employee has worked more than 40 hours in a single workweek.  If the employee has done so, then he or she is due the FLSA-required overtime pay for the hours worked over 40.  Therefore, when one of the restaurant employees worked a total of 45 hours in both jobs in a workweek, he or she should have received the proper overtime compensation for (45 Total Hrs. – 40 ST Hrs.) = 5 overtime hours.
 
This state of affairs can arise in any industry or setting.  FLSA overtime requirements are not limited to a by-the-position, by-the-department, or by-the-location measurement.  Every employer should be certain that what might be a spreading "Everybody Does It" misconception has not taken root in the employer's own organization.

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Now that the election is behind us, employers should consider what they might anticipate in the field of wage-hour law, which is already one of the largest sources of employment-law claims.  While the nature and number of the possible developments are practically unlimited, some of the foreseeable ones include these:

♦   The push to increase the minimum wage under the federal Fair Labor Standards Act, which was at fever-pitch before going dormant as the election season approached, will now re-emerge.  There will be similar efforts under many analogous state and local laws and ordinances.

This will probably include proposals to increase the FLSA's cash-wage requirement for tipped employees for whom employers take that law's tip-credit.  The public-relations approach will be that this increases "the minimum wage for tipped workers", despite the fact that the FLSA minimum wage for tipped employees is already the same as it is for everyone else.

 ♦   Analogous moves might well seek to increase the salary amount required for some of the FLSA's exemptions from minimum-wage and overtime, as well as to impose paid-leave requirements.  Recall the March bill introduced by Iowa Senator Tom Harkin which proposed both, including requiring most employers of at least 15 employees to accrue an hour of paid "sick time" for every 30 hours an employee works, up to at least 56 hours each calendar year.

Another possible measure might involve an attempt to raise the FLSA overtime-pay multiple from its current 1.5 times the regular rate to 2.0 times that rate.  This might be joined with reducing the threshold number of hours for FLSA overtime from 40 hours in a workweek to, say, 35 hours.  Similar FLSA amendments were proposed in the late 70s and early 80s, during another period of high unemployment and persistent economic stagnation.  A further impetus this time around might be the already-burgeoning rates of part-time employment, taken in conjunction with what could be a further trend toward part-time work driven by looming Affordable Care Act requirements.

 ♦   Aggressive government enforcement at federal and state levels is likely to expand.  There will be an even-more-intensified focus upon whether workers treated as independent contractors should instead be viewed as employees.  Employers should expect further national or regional enforcement initiatives undertaken with respect to entire industries.  These initiatives will include (among others) those directed at what the U.S. Labor Department has called "low wage" sectors, such as hospitality businesses and food retailing, retailing in general, some healthcare segments, landscaping, some construction segments, temporary-help agencies, daycare/homecare, agriculture, janitorial services, garment manufacturing, and guard services.

 ♦   Following a noisy notice-and-comment period that ended in March, proposals that would essentially spell the end of the FLSA exemptions for companions and live-in domestic-service workers suddenly dropped from view as the election season commenced.  These provisions will probably be released in their final form in the not-too-distant future.

Another distinct possibility is the revival of the so-called "Right to Know" regulations, which USDOL said would require "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the FLSA."  USDOL further said that the proposal would "also explore requiring employers to provide a wage statement each pay period to their employees," apparently so as to convey to employees "how their pay is computed."  The reach of these provisions would likely be even broader than USDOL has so far disclosed.

 ♦   The "wage theft" movement toward increasingly-draconian penalties and punishments will move forward with renewed energy, especially at the state and local levels.  For proponents of these measures, wage-law violations are unrelated to the multi-jurisdiction, patchwork nature of differing, obscure, sometimes-conflicting, ambiguous and ill-defined, rapidly-changing requirements that are proliferating across the nation.  No, as this publication [Editor's Note:  Link Apparently Taken Down] illustrates, in their eyes employers are instead "dishonest", unscrupulous scofflaws who are "stealing" money from workers.  Employers who remain disengaged on this front and who acquiesce in these pejorative campaigns do so at their peril.

It has never been more important for employers to remain vigilant, informed, and assertive about all of these matters.  It is also essential that each employer ensure right now that it is in compliance with all applicable wage-hour requirements.

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