The Employer's Legal Resource: New DOL Opinion Letter Addresses Extra Compensation for Salaried Employees
On November 8, 2018, the Department of Labor Wage and Hour Division issued new Fair Labor Standards Act (FLSA) guidance in the form of several opinion letters. One of them in particular may be of interest to our readers (others deal with tipped employees, fire departments, and pool management company employees).
Opinion Letter FLSA2018-25 addresses engineering employees who are classified as exempt professionals under the FLSA (thereby making them exempt from the FLSA's minimum wage and overtime requirements). These employees are paid a guaranteed weekly salary (regardless of the number of hours worked), plus an additional hourly amount if they work more than 30 hours in a workweek.
The FLSA permits salaried employees to be paid additional compensation for "hours worked...beyond the normal workweek," which may be paid "on an hourly, daily, or shift basis, without losing the exemption or violating the salary basis requirement" so long as "a reasonable relationship exists between the guaranteed [salary] amount and the amount actually earned." According to the Department of Labor, a "reasonable relationship" exists when the weekly guarantee is roughly equivalent to the employee's usual earnings at the assigned hourly rate for the employee's normal scheduled workweek. Previous legal authority has made clear that a 1.5-to-1 ratio of actual earnings to guaranteed weekly salary is a "reasonable relationship" under the regulations.
Under the facts presented in the Opinion Letter, these employees received a guaranteed weekly salary of $2,100. Thus, the DOL said that usual weekly earnings up to $3,150 (1.5 times the salaried amount) would satisfy the "reasonable relationship" test. Although the regulations do not specify that a 1.5-to-1 ratio is the absolute maximum that would be permissible, the DOL concluded that usual earnings of $3,761 (nearly 1.8 times - close to double - the guaranteed salary) would be too much to satisfy the "reasonable relationship" test.
The takeaway for all employers is this: paying your employees a fixed weekly salary plus an additional hourly rate for all hours worked above a certain benchmark is fine, as long as you don't pay them less than the salary amount if they work fewer hours. However, you must be sure that the amount employees actually take home each week bears a "reasonable relationship" to the specific salary amount. A "reasonable relationship" is a 1.5-to-1 ratio of actual earnings to guaranteed weekly salary, or less. Anything greater than a 1.5-to-1 ratio should be considered more carefully; certainly a 1.8-to-1 ratio is too much, but a 1.6-to-1 or 1.7-to-1 ratio may be acceptable under the particular facts and circumstances at issue. Proceed with caution.
By Rebecca D. Bullard, email@example.com