DOL Opinion Letters Clarify FLSA’s Regular Rate, Permissible FMLA Leave

The U.S. Department of Labor (DOL) recently issued two opinion letters. One of those letters clarified which reimbursement payments may be excluded from an employee’s “regular rate” when calculating overtime pay under the Fair Labor Standards Act (FLSA). The second explained that Family and Medical Leave Act (FMLA) leave may be used for participating in a clinical trial.

Expense Reimbursement Payments

In FLSA2024-01, the DOL responded to an inquiry over whether daily expense payments for tools and equipment may be excluded from an employee’s regular rate of pay. The opinion letter explained that, yes, reimbursement payments may be excluded from the regular rate if an employee incurred the expense but not under other circumstances. Employers may make reasonable approximations of expense amounts incurred, even if companies have made excessive expense payments, the opinion letter said.

A nonexempt employee must be paid overtime pay at no less than one and a half times the employee’s regular rate for time worked in excess of 40 hours in a workweek. Under the FLSA, the formula to compute the regular rate is: Total compensation in the workweek (except for statutory exclusions) divided by total hours worked in the workweek equals the regular rate for the workweek, the DOL notes in a fact sheet.

The opinion letter was composed in response to the representative of a company in the oil and gas industry that had employees who performed inspection and related services on pipelines. The company paid each inspector tool and equipment payments of $25 per day. The business wanted to know if it could make significantly higher tool and equipment payments to each inspector—as high as $150 or $200 per day—and then exclude those payments from each inspector’s regular rate.

The regular rate must include all remuneration paid to an employee, subject to eight statutory exclusions, the DOL noted in the opinion letter. The act permits an employer to exclude from an employee’s regular rate reasonable payments for any properly reimbursable traveling expenses or other expenses incurred by an employee in furtherance of the employer’s interests.

But for reimbursement payments to be excludable from the regular rate, employees must actually incur the expenses, the opinion letter emphasized.

“If the reimbursement payment is not reasonably approximate to the expenses the employee actually incurred, then the excess reimbursement payment must be included in the regular rate,” the DOL wrote. “Employers that provide such excessive expense payments, however, may still exclude the actual or reasonably approximate amount of an employee’s incurred expenses from the employee’s regular rate of pay while including the remaining amount in the regular rate.”

The DOL does not endorse a specific method to approximate employees’ expenses for reimbursement. The FLSA’s regulations require only that the selected method reasonably approximates employees’ actual expenses.

“It does not appear that $150 to $200 per day tool and equipment payments could be excluded from employees’ regular rates,” the DOL concluded. These payments would be six to eight times greater than the $25 per day that the company provides per employee for tool and equipment expenses, and there was no indication the inspectors incurred such inflated expenses, the DOL said.

Reimbursement payments for tools and other expenses cannot be used to artificially reduce employees’ regular rates of pay to reduce the amount an employer must pay its employees for overtime work, the DOL cautioned.

FMLA Leave for Clinical Trial 

In FMLA2024-01-A, the DOL concluded that an employee might use FMLA leave to participate in a clinical trial as part of their treatment for a serious health condition. 

“The term ‘treatment’ is broadly defined under the FMLA to include medical interventions that may or may not be effective in every case,” the opinion letter stated. “When all other FMLA eligibility requirements are met, a serious health condition that involves either inpatient care or continuing treatment by a health care provider, including when such care or treatment involves an individual’s voluntary participation in a clinical trial, qualifies the employee to use FMLA leave.”