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Washington Labor & Employment Wire » DOL Wage and Hour Division Releases New Opinion Letters

DOL Wage and Hour Division Releases New Opinion Letters


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On March 6, 2009, the Department of Labor’s Wage and Hour Division (WHD) posted forty new opinion letters discussing a variety of wage and hour issues. The WHD immediately withdrew 20 of the letters for further consideration. The WHD, charged with administering the Fair Labor Standards Act (FLSA), periodically issues opinion letters in response to questions submitted by employers. This article discusses opinion letters on (1) retroactive payment of overtime, (2) compressed two-week work schedules, (3) deductions for voluntary and mandatory time off, and (4) deductions from paid time-off plans.

Retroactive Payment of Overtime

In this opinion letter, the employer asked about the proper method to calculate retroactive payment of overtime wages for employees previously considered exempt from overtime wages. The employer paid the employees through the fluctuating workweek method, which allows employers to pay a fixed salary “for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period.” 29 C.F.R. § 778.114(a). The WHD allows this method of payment if the salary compensates the employee for all straight time hours worked at a rate not less than the minimum wage and for all overtime hours worked at an additional one-half of the regular rate. Id. For example, the employer expected the employees to work at least 50 hours per week and paid a bi-weekly salary of $1,825.50. The employer converted this compensation to an hourly rate of $18.25 by dividing the bi-weekly salary, $1,825.50, by the expected hours worked in the pay period, 100.

The employer realized that it had misclassified its employees as exempt. Thus, the employer needed pay back wages to the employees for overtime hours worked during the period of misclassification. The employer took the following steps: (1) divided the weekly equivalent of the employee’s bi-weekly salary by the number of hours the employee worked that week to determine the regular rate; (2) multiplied the regular rate by one-half to determine the overtime rate; and (3) multiplied the overtime rate by the number of overtime hours worked in that workweek. The WHD concluded that the employer performed the correct method to calculate any back wages it may owe to the employees.

Compressed Two-Week Work Schedules

In this opinion letter, the employer asked whether a proposed workweek arrangement complied with the FLSA. Currently, the employer allows employees to work nine days during the pay period. The employees work nine hours per day Monday through Thursday and eight hours on every other Friday. The employer plans to change its time-keeping system to require employees to choose their workweek schedule. One schedule starts at 11:31 a.m. Friday and ends at 11:30 a.m. the following Friday, with the scheduled workday starting at 7:30 a.m. The other schedule begins at 12:31 p.m. Friday and ends at 12:30 p.m. the following Friday, with the scheduled workday starting at 8:30 a.m. The employer will pay time and one-half for all hours worked over forty in any workweek.

The WHD stated that a workweek does not need to correspond to a calendar week. Instead, “[a]n employee’s workweek is a fixed and regularly recurring period of 168 hours - seven consecutive 24-hour periods.” 29 C.F.R. § 778.105. The WHD concluded that the employer’s proposed schedules complied with the FLSA because they are fixed 168-hour periods and pay employees for any hours worked over forty in a workweek.

Deductions for Voluntary and Mandatory Time Off

In this opinion letter, the employer proposed to reduce the hours worked by exempt employees due to short-term business needs. The employer would offer voluntary time off (VTO), which allows the employees to continue accruing employment benefits, on a first-come, first served basis. If the employer does not receive a sufficient number of volunteers, it will require mandatory time off (MTO) under a seniority-based method. An employee will be entitled to use accrued paid leave or take unpaid MTO. If, however, the employee chooses not to use any accrued paid leave or does not have enough accrued paid leave, the employer plans to deduct the amount equal to the VTO or MTO from the employee’s salary. If the unpaid VTO or MTO lasts an entire workweek, the employer does not pay the salary for the workweek.

The WHD concluded that the salary deductions proposed by the employer do not comply the salary basis requirement in 29 C.F.R. § 541.602(a). That provision states that “[i]f the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” 29 C.F.R. § 541.602(a). While the WHD allows salary reductions that reflect a reduction in the normal scheduled workweek if the reductions are not designed to circumvent the salary basis requirement, the WHD determined that the employer’s deductions in this situation are the type that the salary basis requirement intends to preclude. For an employer to deduct an employer’s salary for taking VTO, the employee’s decision to take VTO must be completely voluntary and not “occasioned by the employer or by the operating requirements of the business.” 29 C.F.R. § 541.602(a).

Deductions for Paid Time Off

In this opinion letter, the employer proposed to require exempt employees to stay home or leave work early during periods of insufficient work. The employer would deduct the non-work time from the employees’ accrued paid time-off (PTO) accounts. If an employee’s accrued PTO account is exhausted, the employee’s salary will be reduced in full-day increments until it reaches the minimum salary required for the section 13(a)(1) exemption status, $455 per week.

The WHD stated that an employee is not paid “on a salary basis” if any deductions from the employee’s salary is made for full or partial day absences because of a lack of work. 29 C.F.R. § 541.602(a). Even if the absence is directed by the employer or results from a lack of work, an employer can substitute or reduce the employee’s accrued leave if the employee still received an amount equal to the employee’s guaranteed salary.

If an employer requires an exempt employee to work less than a full workweek, the employer must pay the employee’s full salary even if: (1) the employer does not have a bona-fide benefits plan; (2) the employee has no accrued benefits in the leave bank; (3) the employee has limited accrued leave benefits, and reducing that accrued leave will result in a negative balance; and (4) the employee already has a negative balance in the accrued leave bank. The WHD referred the employer to previous opinion letters dated October 24, 2005; May 27, 1999; February 18, 1999; May 23, 1996; and April 6, 1995.

The employer also asked whether it could schedule the exempt employee for less than forty hours and reduce the employee’s pay if the employee’s accrued PTO is exhausted. The employer would require the employee to be away from work one day a week and only pay the employee for four days.

The WHD concluded that this practice would violate the salary basis requirement in 29 C.F.R. § 541.602(a) because the employee would not be paid on a fixed and guaranteed weekly salary basis without regard to the quantity of work performed. The WHD also concluded that a WHD opinion letter dated November 13, 1970, which the employer relied upon for support, is distinguishable from the employer’s proposal. In the 1970 letter, the employer proposed a permanent change from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks. The WHD found that the 1970 proposal did not circumvent the salary basis requirement because that employer paid the employees a bona fide reduction of one-fifth their salaries for a fixed schedule of five annually recurring four-day workweeks. In contrast, the WHD found that the plan proposed here was not part of a fixed schedule; instead, it made salary deductions based on day-to-day or week-to-week determinations of the operating requirements of the business. Because such determinations are inconsistent with the salary basis requirement, the WHD concluded that the employer’s proposed plan violated 29 C.F.R. § 541.602(a).