Last week, the federal Department of Labor issued several Opinion Letters concerning the FLSA, regular rate and bonuses, meal breaks, time clock rounding and extra pay for exempt employees. Such letters indicate the DOL’s official position, but it is not binding on courts. In the first, Op. FLSA2026-5, the DOL explained that an exempt nurse trainers could be paid an hourly rate for picking up staff nurse shifts outside their regular working hours without destroying their exempt status when their primary duties remained their exempt work and the extra non-exempt shifts constituted less than 50% of the hours worked that week. In the next Opinion Letter FLSA2026-6, the DOL explained that employers need not recalculate the regular rate each quarter when providing non-discretionary bonuses that are based on the employee’s total earnings (i.e., straight and overtime) in a way that does not dilute their overtime earnings. In another Opinion Letter FLSA2026-7, the DOL explained that an employer need not pay its employees for 30 minute meal breaks during which the employee is relieved of work responsibilities even if that is insufficient time to depart a corporate campus to travel off-site for more than 15 minutes. In the final Letter FLSA2026-8, the DOL questioned the employer’s practice of rounding employees’ work time to the beginning or end of their scheduled shift, whether it might not be compensating all employees for certain “integral and indispensable” pre-shift activities, and whether the founding was neutral de minimis, but agreed that the employer need not compensate employees for waiting to clock in and out as long as it was before or after their principal work activity.
In the first opinion, exempt Nursing Professional Development
Specialists are involved in the professional development and training of staff. While they may assist in their discretion patients
and staff nurses, they are never the patient’s primary nurse. Some of these exempt employees sometimes pick
up one or two non-exempt Staff Nurse shifts outside their normal working hours (i.e.,
on weekends). Staff Nurses are paid on a
hourly basis and the Specialists are paid
this same hourly rate when they pick up Staff Nurse shifts. The DOL observed that the FLSA regulations
permit employers to pay exempt employees an extra hourly rate when they work
extra hours outside their normal work schedule without losing the
exemption. Further, the DOL also
observed that the FLSA regulations also permit exempt employees to perform some
non-exempt work as long as their exempt duties remain their primary duties, or
most important part of their job.
Typically, if the employees spends at least 50% of their time on their
primary exempt duties, the position will remain exempt, but it remains possible
that an employee will remain exempt even if their exempt duties take less than
50% of their time. Thus, in this case,
the Specialists still spent more than 50% of their time performing exempt work
and were permitted to receive additional hourly compensation for their extra
work.
In the next Opinion, the DOL addressed a quarterly profit
bonus paid to non-exempt employees that was based solely on their respective
percentage of straight and overtime hours worked. In other words, the $100K, was divided among
the employees at the end of the quarter based on their respective, comparative percentage
of hours worked (both straight time and overtime). Their overtime hours were
not diluted by other types of compensation (such as discretionary bonuses,
expenses, gifts, benefits, etc.).
Nevertheless, recomputation of an
employee’s regular rate and the resulting additional overtime pay are
unnecessary for a “percentage of total earnings” bonus, although they may be
required for other types of bonuses. Assuming “total earnings” is the sum of an
employee’s total straight-time earnings and total overtime earnings, a
percentage of total earnings bonus is a bonus payment that provides for “the
simultaneous payment of overtime compensation due on the bonus” (i.e., its own
required overtime compensation). 29 C.F.R. § 778.210; see also id. § 778.503.
This is not an exception to the FLSA’s overtime pay requirement, but the
Division’s longstanding recognition that a bonus that increases an employee’s
total earnings by a fixed percentage “increases both straight time and overtime
wages by the same percentage, and thereby includes proper overtime compensation
as an arithmetic fact.” Id. § 778.503; see also id. § 778.210 (explaining that
such percentage of total earnings bonuses “satisfy in full the overtime
provisions of the Act and no recomputation will be required”); Brock v. Two R
Drilling Co., 789 F.2d 1177, 1179 (5th Cir. 1986). Requiring additional
overtime pay for such bonuses “would be to impose overtime upon overtime,” and,
therefore, be inconsistent with the Act. Siomkin v. Fairchild Camera &
Instrument Corp., 174 F.2d 289, 294 (2d Cir. 1949).
Employers generally calculate total
earnings bonuses in one of two ways. The first, as described in 29 C.F.R. §
778.210, occurs when an employer applies a percentage to an employee’s total
straight-time and overtime earnings directly without regard to how the
employee’s earnings or hours compare to those of other employees. The second
takes place when an employer uses earnings or hours to compare each employee
participating in a bonus pool to all the employees participating in the bonus
pool. . . . an employer may divide each employee’s total earnings by the total
earnings of all employees participating in the bonus pool and then multiply that
percentage by the bonus pool amount to determine each employee’s share. Or, as provided in FOH 32c05a, an employer
may divide the bonus pool amount by the participating employees’ total earnings
and then multiply that percentage by each employee’s total earnings to
determine his or her bonus payout. Either approach is acceptable.
Generally, an employer may consider
additional factors (such as seniority, work location, job title, base pay,
performance, or conduct) to determine the magnitude of an employee’s percentage
increase. As long as the resulting percentage increase to each employee’s
pre-bonus overtime earnings is no less than the percentage increase to their
pre-bonus straight-time earnings, then the principle set forth in sections
778.210 and 778.503 applies even though different employees might receive
different percentages. However, an employer may not use the percentage of total
earnings bonuses “to evade the overtime requirements of the Act[,]” 29 C.F.R. §
778.210, such as where the percentage bonus “decrease[s] . . . in direct
proportion to increases in the number of hours worked in a week in excess of
40.” See id. § 778.503.4 An employer also may not dilute an employee’s overtime
earnings by either: (1) applying a higher percentage increase to the straight
time earnings than the overtime earnings5 or (2) including items within an
employee’s earnings that were previously excluded from the employee’s regular
rate of pay, such as gifts, discretionary bonuses, expense reimbursements, or
employer contributions to employee benefit plans.
In another opinion, the employees are given 30-minute unpaid
lunch breaks where they are relieved of their job duties. They apparently have a break room which they
may use for such purpose. However, it
takes at least 5-10 minutes to get through security to leave the building and walk
to the parking lot, and then another 10 minutes to get back through security
and return from the parking lot, leaving little, if any time, to travel to
nearby restaurants for lunch. The DOL first observed that employers are not
required by the FLSA to provide meal or rest breaks to adults. Meal
breaks need not be compensated, but they must be bona fide breaks from work.
Typically, thirty minutes or more is sufficient to constitute a bona fide meal
break. The DOL has since at least 2004
indicated that employers can prohibit employees from leaving the premises
during their meal breaks without having to compensate employees for the meal
breaks.
The Act does not require absolute
freedom for a break to be bona fide and non-compensable. An employer may place
certain limitations or conditions upon a bona fide meal period without having
to compensate employees for such time, and courts have agreed that employees
need not be permitted to leave the premises to receive a bona fide meal period.
For example, in Ruffin v. MotorCity Casino, 775 F.3d 807 (6th Cir. 2015), the
Sixth Circuit ruled that meal breaks for casino security guards were not
compensable under the FLSA because even though they were not permitted to leave
the premises and were required to monitor their radios, they were otherwise
free to eat and socialize.
In the final letter, the employer had a practice of
permitting employees to clock in or out up to seven minutes before or after
their shift because of potential wait times at the time clock so that they
would not be assessed with tardies or unauthorized overtime. However, the employer also had a practice of
rounding those employees’ work hours to the nearest shift. For instance, if an employee clocked in at 6:53
for a 7:00 shift, he or she would only be credited with having worked at 7:00. Similarly, if the employee clocked out at 7:07
when the shift ended at 7:00, the time would be rounded down to 7:00. However,
and importantly, if an employee clocked in late or clocked out early, the
employer did NOT indicate that it would round down to the nearest shift. The employer admitted that some employees sometimes
immediately began engaging in integral and indispensable pre-shift activities,
even when they clocked in early. The DOL did not think that the de minimis
doctrine applied because the employer was capable of administratively capturing
this pre-shift work and the rounding practice was not neutral (i.e., it always
benefitted the employer). “The de
minimis doctrine “applies only where there are uncertain and indefinite periods
of time involved of a few seconds or minutes duration, and where the failure to
count such time is due to considerations justified by industrial realities.” Further, “’[w]hether time is de minimis is a
fact-specific analysis, considering the practical administrative difficulty of
recording the time, the aggregate amount of compensable time involved, and the
regularity with which the work occurs.”
The Department’s regulations
explain that employers may practice time rounding, but only under specific
conditions. Under 29 C.F.R. § 785.48, employers may round employee time to the
nearest fraction of an hour (such as the nearest 5 minutes, 6 minutes, or
quarter-hour). This practice, however, is only acceptable if it “will not
result, over a period of time, in failure to compensate the employees properly
for all the time they have actually worked.” 29 C.F.R. § 785.48(b). This means
a rounding practice must both be neutral on its face and average out over time
so it does not consistently favor the employer. . . .
When evaluating rounding practices
to apply these principles, courts examine the aggregate impact over a period of
time. While fluctuation from pay period to pay period is to be expected, a
neutral rounding practice must “average out in the long term.” Corbin, 821 F.3d
at 1077. For example, an employer’s rounding practices were found to be
permissible where the pay records showed that “sometimes [the employee] gained
minutes and compensation, and sometimes [the employee] lost minutes and
compensation,” and the net difference between hours worked and hours
compensated amounted to only 3 minutes and $15 over about a year. Id. at 1079.
In contrast, an appeals court reversed a lower court’s conclusion that an
employer’s practice was neutrally applied when evidence showed that its
practices cost roughly 13,000 employees approximately 74,000 hours of
uncompensated time over a 6-year period. Houston, 76 F.4th at 1152. Similarly,
another court found an employer’s rounding policy was likely not neutrally
applied when evidence showed that it favored the employer 94 percent of the
time. Aguilar, 948 F.3d at 1288.
. . .
To the extent that each day,
employees are performing compensable work prior to their paid shifts
commencing, such work is unlikely to be de minimis. In general, as noted above,
“[a]n employer may not arbitrarily fail to count as hours worked any part, however
small, of the employee’s fixed . . . .
Conversely, to the extent that
pre-shift compensable work is irregular, the practical administrative
difficulty of recording the time may justify treating it as de minimis.
Although the employer has a timekeeping system that is capable of documenting
the time of arrival and departure, we cannot definitively say, based on the
information provided, whether it is administratively feasible for the employer
to record the actual time each employee performs their first principal
activity—thus beginning their compensable workday—as opposed to engaging in
personal activities such as getting coffee, socializing, checking phones,
storing personal belongings, or simply waiting for their shift to start. Given,
as noted above, the large number of hospital employees and the likely
differences between the extent to which they are, or are not, on a consistent
basis performing principal activities between clocking in and the formal start
to their shift, we are unable to conclude that the time is—or is not—de
minimis. . . .
Employers, including the hospital
at issue here, should nonetheless be particularly careful about how and to what
extent they apply the de minimis doctrine. Particularly given the technological
advances that have made it possible for employers to track employees’ work time
with increasing precision, employers should expect exacting scrutiny of de
minimis claims where employees perform off-the-clock work with any degree of
regularity.
In this case, the employer’s rounding always seemed to reduce
the employees’ pay and was always in favor of the employer in rounding up or
down. Thus, “the critical question under 29 C.F.R. § 785.48(b) is whether a
rounding practice, evaluated over a period of time, is facially neutral and
operates neutrally such that it does not systematically undercompensate
employees for hours worked.” The DOL
could not definitely determine whether the employer was complying or not with
the FLSA because of missing factual realities:
We note initially that a rounding
policy for clock-in and clock-out time only affects the calculation of hours
worked to the extent that employees are performing compensable work between the
clock in/out time and the rounded time. As noted above, clocking in or out, by
itself, is generally not considered compensable work. Likewise, the time
between clocking in and beginning principal activities, and between completing
principal activities and clocking out, is also not compensable. . . .
As to the beginning of the day, if
employees are, in fact, performing compensable work—such as respiratory
therapists receiving handoff reports—after clocking in but before their paid
shifts, then based strictly on the information provided, the hospital’s
rounding policy is not neutral pursuant to 29 C.F.R. § 785.48(b) because it
both is not facially neutral and only ever benefits the employer without ever
benefiting the employee. According to the facts presented, the employer’s only
rounding practice is to round early check-ins to the scheduled shift time. As a
result, employees who perform
compensable work during the up-to-7-minute early check-in period are always
uncompensated for that time and are not afforded a chance for over-compensation
to average that time. Accordingly, under these facts, the hospital’s rounding
practice is inconsistent with section 785.48(b) and would result in a failure
to properly record, as well as potentially to properly compensate for, all
hours worked. If, however, the hospital’s rounding practice is facially neutral
and operates such that employees can and actually do benefit from rounding in
other circumstances—for example, if employees who clock in up to 7 minutes late
are nonetheless credited with starting at their scheduled time and that
practice averages out over time to offset any work time lost due to the
rounding of early check-ins to the scheduled shift time—then the policy would
likely comply with section 785.48(b).
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
