The NLRB is shuttered. Everyone at the EEOC is teleworking. In the midst of all that is going on around us it is somewhat comforting I guess to know that there is still business as usual at the Department of Labor. Last week, the DOL Wage and Hour Administrator Cheryl Stanton issued three new Opinion Letters interpreting the Fair Labor Standards Act (FLSA). You can find all FLSA DOL Opinion Letters at https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA
Remember, DOL Opinion Letters are general legal guidance but do not bind courts. An employer who relies on DOL guidance, however, will have a good faith defense to claims that it violated the FLSA.
All three letters examine whether certain forms of non-“pay” compensation (think “your hidden paycheck”) such as group-term life insurance policy, longevity payments and referral bonuses need to be a part of the calculation of a worker’s regular rate of pay. If so, that amount will also be a part of calculating overtime rates. Overtime is paid for hours worked over 40 in a work week and is required to be paid for “all remuneration for employment,” as long as the payments don’t fall within any of eight statutory exclusions. And, by the way, no one told me there was going to be math:
- Excludability of longevity payments from the regular rate of pay (FLSA2020-3). https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/2020_03_26_03_FLSA.pdf
A city in Alabama asked whether Christmas bonuses paid to full time employees who have been with the city for at least five years based on the amount of time they’d been employed could be excluded. DOL said “no,” but that the bonuses could be if excluded they were structured slightly differently.
The bonus was the result of a 40 year-old program via city resolution. DOL said this was the sort of longevity bonus that cannot be excluded from the regular rate, even if it paid in a lump sum, because employees were entitled to the money after they hit certain longevity benchmarks.
Said the DOL: “[w]hile the resolution leaves the form and time of payment to the city’s discretion, it does not provide city officials with discretion to deny the full amount of the longevity award to any eligible employee.” Administrator Stanton stressed that (1) if the resolution had said that eligible employees might get longevity pay up to a maximum amount, leaving the exact dollar figure to city officials to figure out each, and (2) if the bonus wasn’t tied to hours or work performance, it could then be excluded from an employee’s regular rate.
- Excludability of referral bonuses from the regular rate of pay (FLSA2020-4). https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/2020_03_26_04_FLSA.pdf
Another employer was considering paying workers a “referral bonus” for successfully recommending new hires. It wanted to know if it could exclude such a bonus from the regular rate. The Opinion Letter explained that the bonus would be one payment to the employee who made the reference when the applicant is hired and a second payment on the new employee’s one-year anniversary.
Administrator Stanton noted that DOL issued December 2019 regulations on how employers should calculate the regular rate. That rule says referral bonuses can be excluded from workers’ regular rate as long as the recruiting activity is voluntary, limited to the nonwork hours recruiting of people in their social circle, and involves nominal amounts of time.
“As explained in the preamble to the revised regulations, satisfaction of these conditions demonstrates that the employee receiving a recruitment bonus is not employed to recruit others and, therefore, the bonus is not ‘renumeration for employment’ that must be included in the employee’s regular rate,” she said. “A referral bonus outside of these circumstances generally constitutes remuneration for employment and must be included in the regular rate unless another statutory exclusion applies.”
In this case, the first payment could be excluded, but the second payment likely could not because it is “contingent on the referring employee” being employed for a year, and therefore is a “longevity bonus.” Note that a longevity bonus generally must be factored into the regular rate unless it meets a separate set of rules for exclusion and the employer here had not provided enough details for DOL to make that determination here.
- Excludability of an employer’s contributions to a group-term life insurance policy from the regular rate of pay (FLSA 2020-5). https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/2020_03_26_05_FLSA.pdf
Finally, an employer asked it was ok to exclude from nonexempt, hourly workers’ regular rate of pay the employer’s cost of group-term life insurance coverage beyond $50,000. IRS rules provide that such contributions by employers must be reported on pay stubs as part of workers’ gross taxable income. But DOL said those contributions to a group-term life insurance policy on an employee’s behalf don’t need to be included in an employee’s regular rate provided that certain legal and regulatory criteria are met regardless of the dollar figures at issue.
“While the insurance policy ‘benefits must be specified or definitely determinable on an actuarial basis’ or there must be ‘a definite formula’ for determining both the employer’s contributions and the benefits to employees for the contributions to be excludable,” said DOL, “nothing in these statutory or regulatory provisions limits the contributions to a particular dollar amount.”
“Therefore, it is not necessary to separately evaluate income imputed to an employee for an employer’s cost of providing group-term life insurance coverage in excess of $50,000. The department’s regulations make clear it is whether an employer’s contributions to a benefit plan satisfy these statutory or regulatory requirements that matters in determining whether the contributions are included in or excludable from an employee’s regular rate.”