In the Spirit of the Season, the DOL Gives Gifts to Both Employers and Employees

Final Rule on Regular Rate

On March 29, 2019, the United States Department of Labor (the “DOL”) announced it was going to work on a new rule to clarify how companies calculate overtime for employees. The clarification would be directed at the regulations governing the “regular rate of pay” requirements under the Fair Labor Standards Act (the “FLSA”), which for purposes of these updated regulations requires employers to pay their employees overtime pay equal to one and one-half times the employee’s regular rate of pay for all hours worked in excess of forty (40) hours during a workweek. The regular rate of pay regulations define what forms of compensation must be included and those that may be excluded for purposes of calculating same.

On December 12, 2019, the DOL announced its Final Rule, which is the first significant update to the regulations governing the regular rate of pay requirements under the FLSA in over fifty (50) years. The Final Rule will go into effect on January 15, 2020.

Per the DOL’s release: “In this Final Rule, the DOL updates a number of regulations to provide clarity that allows employers to provide more benefits to their employees without unknown overtime consequences or litigation, and better reflect the 21st-century workplace. In doing so, the DOL expects that these changes will promote compliance with the FLSA; provide appropriate and updated guidance in an area of evolving law and practice; and encourage employers to provide additional and innovative benefits to workers without fear of costly litigation, resulting in a positive impact on workplace morale, employee compensation, and employee retention.”

Exclusions

The Final Rule clarifies whether certain types of benefits or “perks” and other miscellaneous payments commonly paid by employers to their employees must be included in the regular rate used to determine an employee’s overtime pay. Specifically, the DOL clarifies the current regulations to confirm employers may exclude the following from an employee’s regular rate of pay:
 

• The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, the education provider, or a student-loan program), and adoption assistance;
• Payments for unused paid leave, including paid sick leave or paid time off;
• Payments of certain penalties required under state and local scheduling laws;
• Reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel (even if not incurred “solely” for the employer’s benefit);
• Certain sign-on bonuses and certain longevity bonuses;
• The cost of office coffee and snacks to employees as gifts;
• Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples); and
• Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

 
The Final Rule also includes additional clarification about other forms of compensation, including payment for meal periods (payment of compensation for bona fide meal periods alone does not convert such time to hours worked unless an agreement or actual course of conduct establish that the parties have treated the time as hours worked) and “call back” or “call out” pay (payments made pursuant to an agreement or established practice consisting of a specified number of hours’ pay when an employee, without prearrangement, is asked to return to work after having completed his or her scheduled hours, or is asked not to come to work).  Those forms of compensation and the corresponding time does not need to be included when calculating the regular rate if the employee is not actually working.

“DOL Timesheets”

On December 12, 2019, the DOL also released another update to its free smartphone application “DOL Timesheet,” which is described by the DOL as “a timesheet to record the hours you work and calculate the amount you may be owed by your employer. It also includes overtime pay calculations at a rate of one and one-half times (1.5) the regular rate of pay for all hours you work over 40 in a workweek.” The smartphone app does not handle items such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials, or pay for regular days of rest. The availability of DOL Timesheet and other similar personal timekeeping apps to employees confirms the importance of an employer maintaining accurate records of the hours worked and wages earned by its employees.

Here is a reminder of what your recordkeeping obligations are under the FLSA.

Recordkeeping Requirements

The FLSA requires covered employers to maintain basic payroll and other records for each employee. While the statute does not require any particular form for the records, it does require that the records include specific identifying information about the employee and the hours worked and wages earned and paid.

The following is a list of the basic payroll records that an employer must maintain:
 

1. Employee’s full name and social security number. If an employee has a separate “employee identification number” for payroll purposes, this information must be maintained.
2. Employee’s complete home address, including zip code.
3. Date of birth for employees under the age of 19.
4. Employee’s sex and occupation.
5. Time and day of the week when the employee’s workweek begins.
6. Hours worked each day.
7. Total hours worked each week.
8. Basis on which employee’s wages are paid, i.e., “$9.00 per hour”, “$500.00 per week”, or “piecework.”
9. Regular hourly pay rate.
10. Total daily or weekly straight time earnings.
11. Total overtime earnings for the workweek.
12. Total additions to, or deductions from, the employee’s wages. For all deductions, employers must maintain the appropriate document, signed by the employee, authorizing same.
13. Total wages paid each period.
14. Date of payment and the pay period covered by the payment.

The FLSA requires that these basic payroll records, as well as any collective bargaining agreements, employment contracts, and sales and purchase records for employees who are subject to minimum wage requirements, be maintained for a minimum of three years.

Statutory Penalties and Personal Liability

While employers often intuitively understand that business best practices require proper recordkeeping, some fail to appreciate the ramifications of not embracing these best practices. For example, in one case, a Maryland district court determined a nonprofit that operated community living facilities owed over $525,000 to almost 400 employees in back wages and penalties. The court found the organization failed to keep proper timesheets for employees and did not pay the proper wages and overtime owed.

In another case, the DOL settled with a couple of employers who provided intelligence and information technology services to the U.S. Army, after having found the companies violated FLSA by not properly compensating workers for all on-call time, resulting in overtime violations. The employers violated the FLSA recordkeeping requirements for failing to maintain proper records of the number of hours worked by employees and their related compensation. The companies paid a combined total of $1,060,554 in back wages to settle the claims.

In Brown v. Family Dollar Stores of Indiana, the Seventh Circuit Court of Appeals (which includes Illinois, Indiana, and Wisconsin in its jurisdiction) held that when an employer fails to keep accurate records of work performed, the employer must bear the consequence of that failure. Specifically, that court stated: “where an employer failed to keep the proper and accurate records required by the FLSA, the employer rather than the employee should bear the consequences of that failure. To place the burden on the employee of proving damages with specificity would defeat the purpose of the FLSA where the employer’s own actions in keeping inadequate or inaccurate records had made the best evidence of such damages unavailable.”

According to the DOL’s original press release announcing the new app, “[t]his new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records.” If you are asking why your employees would need or would want to keep their own, separate time records, the DOL’s press release helpfully informed: “[t]his information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.” U.S. Secretary of Labor Hilda L. Solis added this praise for the new technology: “This app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay."

As the employers learned in the above cases, if employers do not keep proper records of work hours, the DOL and the courts will rely on employee testimony (and their smartphone records) to establish the number of hours worked—and that reliance is not likely to be favorable to the employer. Further, even if only one employee is alleging a single FLSA violation, it is important to remember the DOL can—and often will—investigate all of the employer’s relevant records to search for other possible violations.

The Employer’s Bottom Line

The bottom line for employers: if you can’t defend against an employee’s wage claim because you failed to maintain adequate records, it is likely you will be found to have violated the FLSA. Violations will certainly result in an award of back wage payments to the impacted employees, but more importantly, could result in additional civil monetary penalties. Additionally, the FLSA provides for personal liability for the business decision-makers (owners, officers, and even management personnel) found responsible for the violations, including additional fines and in extreme cases, imprisonment.

If you need assistance in determining your employees’ regular rates of pay or whether your current recordkeeping policies and procedures properly protect you from potential FLSA claims, please contact Maureen A. Maffei or another member of our Labor, Employment, and Immigration Practice Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.