DOL: Designated Regular Rate for Overtime May Violate FLSA

Allen Smith, J.D. By Allen Smith, J.D. December 31, 2018
DOL: Designated Regular Rate for Overtime May Violate FLSA

​An employer should ensure that travel time is paid lawfully, even if it uses a pay method that is more complicated than paying a single hourly rate for all hours worked—including travel time—and paying overtime at 1.5 times that hourly rate, a recent Department of Labor (DOL) opinion letter suggested.

A compensation plan that paid an average hourly rate varying each week may not have complied with the Fair Labor Standards Act's (FLSA's) overtime requirements if the employer designated a set regular rate of pay for overtime and the actual regular rate exceeded that amount, the DOL stated in a Dec. 21 opinion letter. "Neither an employer nor an employee may arbitrarily choose the regular rate of pay; it is an 'actual fact' based on mathematical computation," according to the opinion letter.

To calculate weekly pay, the employer in the opinion letter multiplied a home health aide services employee's time with clients by his or her hourly pay rate for such work. The employer then divided the product by the employee's total hours worked, which included the client time and the travel time between client locations during the workday. The employer guaranteed that the quotient met federal and state minimum-wage requirements. Furthermore, the employer noted that "a typical standard rate of pay is $10 per hour with a client including travel time" and that if any employee works more than 40 hours (total paid hours and travel time) in any given workweek, that employee would be paid time and a half for all time over 40 hours at a rate of $10. 

The FLSA requires that nonexempt employees receive overtime of at least one and one-half times their regular rate of pay for time worked in excess of 40 hours per workweek. "The regular rate must be calculated by dividing the total weekly compensation by the total number of hours worked," noted Jeffrey Ruzal, an attorney with Epstein Becker Green in New York City. If an employee's actual calculated regular rate is $12 for a given workweek, then designating $10 as the regular rate would result in an underpayment in overtime, he said.

A rate of pay that fluctuates each week is more common in industries where the company is paid only for time providing services and not for incidental time worked, such as for travel time between home health aide clients, noted David Klass, an attorney with Fisher Phillips in Charlotte, N.C.

Risky Regular Rate Model

Although the DOL suggested that the compensation plan may violate the FLSA, Brett Coburn, an attorney at Alston & Bird in Atlanta, said the violation was theoretical, as the workers' actual calculated regular rate might be $10 or less.

If the employer always assumes a regular rate of pay of $10 per hour when calculating overtime, the employer will not pay all overtime due to employees whose actual regular rate of pay exceeds $10 per hour, the department stated.

But the DOL added that the employer's compensation plan would comply with the FLSA's overtime requirements for all employees whose actual regular rate of pay is less than $10 per hour, as an employer may choose to pay an overtime premium in excess of the statutorily required amount.

Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., cautioned that the methodology used by the employer in the opinion letter may not comply with some state laws.  

"Employers who are implementing an overtime calculation model that uses a regular rate that is derived from anything other than the regular rate calculation set forth in the FLSA regulations need to be very careful to make sure the model can never result in a regular rate that is lower than what the actual regular rate would be," Coburn noted.

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]

Travel Time Pointers

It's possible the home health company's contractor only paid for services provided to clients and not for incidental work time such as traveling between clients' homes, Klass said. If that's the case, the company was tying its employees' pay to how the company earns income, while recognizing that it must pay employees for all time worked, including travel time. "This pay method may be preferred because it encourages employees to be efficient traveling between clients, as there will be little incentive for the employee to spend time in nonincome-producing tasks for the company," he stated.

Employers need to be thoughtful about how they compensate nonexempt employees for time spent traveling between patient or customer visits during the workday, Coburn said. Implicit in the facts underlying this opinion letter is that such travel time is compensable.

Even though the employer did not pay an hourly rate for travel time (the travel time was essentially compensated through part of the hourly rate paid for patient visit time), Coburn said the employer did have in place a system for:

  • Tracking such travel time.
  • Ensuring that employees who work travel time receive at least the applicable minimum wage for all hours worked in the workweek, including travel time.
  • Ensuring that employees who work travel time receive overtime for hours worked in the workweek beyond 40, including travel time.

"These three elements are critical for any nonexempt employees who work compensable travel time during the workday," Coburn said.



Hire the best HR talent or advance your own career.


HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.