On December 21, 2018, the Department of Labor (DOL) released an opinion letter addressing whether paying an employee an average hourly rate that may vary from week to week complies with the Fair Labor Standards Act (FLSA). The employer at issue calculated weekly pay by multiplying the employee’s time with clients by his or her hourly rate for such work. The employer then divided that number by the total hours worked by the employee, which includes both client time and travel time. The employer guaranteed that the final number meets both federal and state minimum wage requirements. Employees were compensated for working more than 40 hours in a week, but the overtime rate was based off of a standard rate of $10 an hour, regardless of the employee’s actual average hourly rate of pay.
The DOL found that the compensation plan complied with the FLSA’s minimum wage requirements. However, the DOL found that the compensation plan did not comply with the FLSA’s overtime requirements. The employer’s assumption of a regular rate of pay of $10 per hour when calculating overtime may result in the employer’s failure to pay overtime due to employees whose actual regular rate of pay exceeds $10 per hour, thus violating the FLSA. An employer may not randomly choose the regular rate of pay at which overtime is computed.
The key takeaway for employers is that actual data must be used to determine both hours worked and compensation expressed as an employee’s regular rate in order to accurately compute the amount of wages and overtime compensation due to an employee. While it is legal to pay an employee more than what he or she is owed, an employer may not pay an employee less than the wages and overtime compensation owed.
Attorneys at Fishel Downey Albrecht & Riepenhoff LLP monitor DOL and FLSA opinions and decisions and regularly advise public and private employers on compliance with the FLSA and other federal laws. If you have any questions regarding the FLSA or any other matter, please contact attorneys Benjamin Albrecht (balbrecht@fisheldowney.com) or Stephanie Schoolcraft (sschoolcraft@fisheldowney.com) by email or phone at 614-221-1216.