Proposed Regular Rate of Pay Rules Moving Towards Final Version
The proposed rules amending regular rate of pay requirements under 29 USC 207(e)(2) have been received by the White House’s Office of Information and Regulatory Affairs (OIRA) on Sept. 9, 2019 [OIRA website, RIN 1235-AA24, 9/9/19].
Background. The Fair Labor Standards Act (FLSA) generally requires an employer to pay employees eligible to receive overtime one-and-a-half times their “regular rate” of pay for each hour worked in excess of 40 per week (see Payroll Guide ¶ 18,350). Under 29 USC 207(e)(2), the calculation of an employee’s “regular rate” of pay excludes payments received when no work is performed (e.g., vacation pay, holiday pay, sick pay), and reimbursements for expenses that an employee may incur (e.g., travel expenses or any other payments received that are not compensation for hours of employment).
The DOL issued proposed regulations in March and the comment period ended May 28, 2019.
Regular rate regulations have not been revised significantly in over 50 years and the DOL believes that changes in the 21st century workplace are not reflected in its current regulatory framework. Under current rules, employers are discouraged from offering more perks to their employees as it may be unclear whether those perks must be included in the calculation of an employees’ regular rate of pay.
The proposed rule would provide clarify whether certain modern perks would be required to be included in the regular rate calculation for overtime purposes.
The amended rule would exclude incentives such as:
- the cost of providing wellness programs and gym access;
- payments for unused paid leave, including paid sick leave;
- reimbursed expenses, even if not incurred “solely” for the employer’s benefit;
- reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and that satisfy other regulatory requirements;
- discretionary bonuses;
- tuition reimbursement programs and repayment of educational debt;
- benefit plans, including accident, unemployment, and legal services; and
- tuition programs, such as reimbursement programs or repayment of educational debt.
The proposed rules would remove the restriction that “call-back” pay must be “infrequent and sporadic” to be excluded from the regular rate calculation. Paid time spent for bona fide meal periods would also be excluded absent an agreement or established practice under the amended rules.
Finally, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40% of the federal minimum wage, currently $2.90 ($7.25 X 40%) on average for overtime workweeks in the period for which the employer makes the payment. The current limit is 50¢ per week on average.
The DOL believes that the proposed changes will facilitate compliance with the Fair Labor Standards Act (FLSA) and reduce litigation regarding the regular rate of pay.
New DOL Opinion Letters on Exemptions, Leave and Garnishments
The U.S. Department of Labor (DOL) has issued three new opinion letters concerning the retail or service establishment exemption of the Fair Labor Standards Act (FLSA), whether an employer may delay designating paid leave as Family Medical Leave Act (FMLA) leave due to a collective bargaining agreement (CBA), and whether employers’ contributions to employees’ health savings accounts (HSAs) are earnings under the Consumer Credit Protection Act (CCPA).
FLSA exemption for retail/service. The FLSA exempts retail or service establishment employees paid by commission from overtime pay if more than half of their compensation for “not less than one month” represents commissions on goods or services (see Payroll Guide ¶18,350). This DOL opinion letter responds to a request regarding how many pay periods (four or six weekly or two or three biweekly) would qualify for the “not less than one month” time period for the exemption. The DOL concluded that four weekly or two biweekly pay periods is typically not a calendar month and would not satisfy the statutory requirement that the time period be at least one month. However, six weekly or three biweekly pay periods would satisfy the FLSA’s exemption [FLSA2019-13].
Delaying FMLA leave due to CBA. The FMLA provides eligible employees of covered employers with up to 12 weeks of unpaid, job-protected leave per year for specified family and medical reasons. This DOL opinion letter responds to whether an employer may delay designating paid leave as FMLA leave if the delay complies with a collective bargaining agreement (CBA) and the employee prefers that the designation be delayed. The DOL concluded that once an eligible employee communicates a need to take leave for an FMLA-qualifying reason, an employer may not delay designating such leave as FMLA leave, and neither the employee nor the employer may decline FMLA protection for that leave. This would be the case even if the employer is obligated to provide job protections and other benefits equal to, or greater than, those required by the FMLA pursuant to a CBA or state civil service rules [FMLA2019-3-A].
HSA contributions for wage garnishment earnings. HSAs allow employees to contribute pretax dollars towards future medical expenses (see Payroll Guide ¶3408). Employers may also contribute to an employee’s account. The CCPA limits the amount of a debtor’s disposable earnings that may be garnished. Some employers are treating their HSA contributions as earnings under the CCPA, which, particularly in regard to employees with high disposable earnings, may result in employers exceeding CCPA wage limits in calculating wage garnishments. This DOL opinion letter responds to whether employers’ contributions to employees’ HSAs constitute earnings for wage garnishment purposes under the CCPA. The DOL concluded that employer contributions to HSAs are not earnings under the CCPA and are therefore not subject to the CCPA’s garnishment limitations. Contributions that are already in a HSA are past the point when they may be withheld by or garnished by an employer.
The DOL did add that when a HSA contribution is still in the employer’s possession and is about to be paid to the account, it could be subject to the CCPA’s limits on garnishment if they constitute earnings (compensation paid or payable for personal services). The question is whether the employer paid the amount for the employee’s services. In determining whether certain payments are earnings under the CCPA, the DOL’s Wage and Hour Division (WHD) generally compared the nature of those payments to wages, salaries, commissions, and bonuses. The DOL examined the two characteristics of wages, salaries, commissions, and bonuses that distinguish them from employer contributions to HSAs and concluded that employer contributions to HSAs are not earnings as defined by the CCPA.
Generally, as long as an employer does not determine its HSA contributions on the basis of the amount or value of individual employees’ services and does not give employees an option of receiving cash in lieu of an employer’s contribution, the employer’s contributions to an HSA are not earnings under the CCPA and are not subject to the CCPA’s garnishment limitations [CCPA2019-1].
Time Spent Booting Up and Launching Timekeeping System De Minimis and Noncompensable
A federal district court has ruled that time spent by call center employees in pre-shift activities that included booting up the computer and logging into a timekeeping system was de minimis and therefore noncompensable [Peterson v. Nelnet Diversified Solutions, LLC, DC CO, Dkt. No. 17-cv-01064-NYW, 8/23/19].
Andrew Peterson was employed by Nelnet Diversified Solutions, LLC (Nelnet), a company that services student loans, as a call center representative (CCR). Peterson filed suit on behalf of current and former account managers and CCRs for unpaid overtime. Nelnet employs CCRs in Omaha and Lincoln Nebraska and Aurora, Colorado. Peterson alleged that Nelnet did not record hours worked accurately, required CCRs to perform work before and after CCRs clocked in and clocked out of the timekeeping system and did not pay CCRs for working during unpaid lunch breaks.
Nelnet and Peterson do not dispute that CCRs are paid once they clock into the timekeeping system and to logging into the CCR’s personal desktop and timekeeping system (pre-shift activities). Prior to logging in, the CCRs must perform a series of steps including swiping a security badge known as “boot up time”, entering a username and password, and waiting for the intranet to load so that the employee may access the timekeeping system. CCRs may perform personal tasks as they wait for the system to be available. These pre-shift activities are necessary before the CCRs can begin their work. The boot-up time varies from 0.5 minutes to 1.02 minutes and logging into the timekeeping system can take up to 1.3 minutes. Times vary depending on the location of the call center. CCRs are permitted to clock in five minutes prior to the scheduled start time and Nelnet requires the CCRs to be ready for calls within six minutes before or after the scheduled start time.
In general, The Portal-to-Portal Act (29 USC 254(a)(1)) relieves an employer of the responsibility for compensating employees for “activities which are preliminary or postliminary to [the] principal activity or activities” of a given job. Not all “preliminary or postliminary” activities can go uncompensated, however. The Supreme Court ruled in IBP, Inc. v. Alvarez, 546 U.S. 21 (2005) (see Payroll Guide Newsletter ¶ 24.1 11/25/2005) that activities performed either before or after the regular work shift are compensable under the FLSA “if those activities are an integral and indispensable part of the principal activities.”
The court considered the Supreme Court ruling in Steiner v. Mitchell, 350 U.S. 247, where the principal activities of a job encompass any activities that are an integral and indispensable part of those principal activities and would be compensable under the Fair Labor Standards Act (FLSA). The court found that the boot-up time and loading of programs were “an integral and indispensable part” to the principal activity of accepting calls, and therefore did not qualify for the Portal Act’s exemption. Additionally, the court noted that whether the CCRs are able to perform personal tasks during that time is not relevant in determining if the activity is “integral and indispensable.” The court further rejected Nelnet’s argument that the time was analogous to waiting in line to clock in. Here, the court considered the pre-shift activity to fall under the “continuous-workday rule” that holds once the employee’s workday starts with the first principal activity, all activity is compensable until the workday ends. The court reasoned that the pre-shift activities were “only one step removed from the principal activity (taking calls).”
While the court found that the pre-shift activities were “integral and indispensable,” the court concluded that Nelnet could not record the time spent in these activities without obtaining custom software or a burdensome cross-checking procedure. Alternatives offered by the CCRs were found to be equally administratively burdensome. The court also considered the amount of the claim, $30,000, to be significantly less than what courts have historically deemed as de minimis, in light of the amount of time it represented across all plaintiffs.
The court declined to address the alleged violation of the Colorado Wage Act and remanded the issue to the state court.