On December 21, 2018, the Department of Labor issued two opinion letters regarding the Fair Labor Standards Act (“FLSA”). The first opinion letter explains that an employer failed to comply with the FLSA’s overtime requirements when it designated a standard regular rate of pay for overtime purposes and the actual regular rate of pay exceeded that amount. The second opinion letter found that certain members of a religious organization were not employees under the FLSA, but, even if considered employees, qualified for the ministerial exception. This blog post explores both letters.
Designating a Standard Regular Rate for Overtime May Violate the FLSA
An employer who provides home health aide services to its clients asked the DOL to determine whether its compensation plan complied with the FLSA. To calculate weekly pay, the employer multiplies an employee’s time with clients by his hourly pay rate for the work, then divides the product by the employee’s total hours worked, which includes both client time and travel time. The employer guarantees the quotient meets both federal and state overtime laws. For example, if an employee with a $15 hourly rate works 40 hours during a week (30 of which was spent with a client), then the employer runs the following calculation: 30 hours x $15 per hour = $450 divided by 40 hours = $11.25. If $11.25 falls below the applicable minimum wage, then the employer increases the employee’s hourly pay to meet minimum wage requirements. However, if an employee works overtime during that week, the employer uses a set regular rate of pay of $10 (the typical standard rate of pay) to calculate overtime pay, regardless of the employee’s actual regular rate of pay. So in our example above, the employer pays overtime at $15 per hour, rather than $16.875 per hour.
The Compensation Plan Meets Minimum Wage Requirements, But May Not Comply With Overtime Requirements
The DOL concluded that the employer’s compensation plan complied with the FLSA’s minimum wage requirements because the employer guaranteed that the employee’s hourly rate each week meets both federal and state minimum wage requirements.
However, it concluded that the plan may not comply with the FLSA’s overtime requirements. Under the FLSA, nonexempt employees receive overtime compensation of at least time and a half of their regular rate of pay for all time worked in excess of 40 hours per workweek. See 29 U.S.C. § 207(a)(1). In general, the regular rate of pay is calculated by dividing the total pay for employment in any workweek by the total number of hours actually worked. Here, the DOL explained that the employer’s compensation plan may violate the FLSA because the employer always assumes a regular rate of pay of $10 per hour when calculating overtime due even when the actual regular rate of pay may exceed $10 per hour. “Neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an ‘actual fact’ based on ‘mathematical computation’”. In contrast, the plan does not violate the FLSA for those employees whose actual regular rates of pay are less than $10 per hour “as an employer may choose to pay an overtime premium in excess of the statutorily required amount.”
Next Steps for Employers
Employers who designate a standard regular rate of pay for overtime need to ensure that it does not result in a regular rate lower than what the actual regular rate would be based on the compensation and hours worked during the week. Please consult with your Orrick attorneys regarding your calculations for an employee’s regular rate and its implications for federal and state wage and hour requirements.
Finding for Religious Freedom Under the FLSA
A religious organization requested the DOL’s opinion regarding whether its members are employees under the FLSA. The religious organization gathers in small communities and is dedicated to sharing “in a community of goods”. Members give all their personal property and assets to the community and then share living quarters, meals and religious services. The members receive goods, shelter, medical care, and funds for personal subsistence “not as a right or in proportion to services rendered, but according to need.” The community also generates income via two non-profit ventures: a venture that manufactures devices to help people with disabilities and children become more mobile, and a venture that makes wood furniture for the children and schools.
The Community Members Are Not Employees Subject to the FLSA
The DOL found that the community members are not subject to the FLSA because their activities do not fit any “traditional employment paradigm covered by the Act.” Harker v. State Use Indus., 990 F.2d 131, 133 (4th Cir. 1993). Indeed, members do not expect to receive compensation in exchange for their services and have “chosen to donate their services free of coercion by the community.” This indicates they are not employees under the FLSA.
Even if the Members Were Considered Employees, Their Activities Fall Under the Ministerial Exception
Even if the members were considered employees under the FLSA, the DOL found that they would fall squarely within the ministerial exception. The ministerial exception is for religious ministers who service without promise or expectation of compensation. Schleicher v. Salvation Army, 518 F. 3d 472 (7th Cir. 2008). An entity may invoke the ministerial exception if its “mission is marked by clear or obvious religious characteristics.” For the members, including those who work at the two nonprofit, income-generating ventures, their work is an “inextricable part of their religious communal life: to them, work is ‘indivisible from prayer’ and a ‘form of worship.’” See Schleicher, 518 F.3d at 476-77.
The Current Administration’s Trend for Religious Expansion
As we previously discussed in this post on Trump’s Religious Freedom Executive Order, this opinion letter further demonstrates this Administration’s willingness to engage religious groups and offer policies consistent with their agenda.
United States Department of Labor, FLSA Overtime Calculator Advisor, https://webapps.dol.gov/elaws/whd/flsa/otcalc/i2.asp