Minimum Wage Credit for Board and Lodging Leaves No Room for Profit, 4th Circuit Rules
Author: Michael Cardman, XpertHR Legal Editor
January 29, 2018
Employers may claim the "reasonable cost" of board and lodging they provide to employees as a credit toward the minimum wage. But, as a new ruling from the 4th Circuit Court of Appeals shows, employers may not include any profit they make in this cost.
As long as certain conditions are met, the Fair Labor Standards Act (FLSA) allows an employer to count as wages the value of food, housing and "other facilities" like meals and transportation provided to employees. For example, consider an employee who is paid $6.00 per hour and provided room and board that costs the employer $100 per week. If the employee works 30 hours in a workweek, the $180 in cash wages is added to the $100 credit for board and lodging for a total of $280 for the week. The employee's regular rate of pay is $9.33 per hour ($280 divided by 30 hours), which exceeds the federal minimum wage requirement of $7.25 per hour.
In Balbed v. Eden Park Guest House, a bed-and-breakfast claimed that the room it provided to one of its innkeepers was worth between $850 and $1,800 per month, with the low end representing a manager's "asserted knowledge of the local rental market" and the high end representing the price it charged guests to stay in an upstairs guestroom.
By relying on the room's purported market value, which includes profit, the bed-and-breakfast violated a condition that the cost of board and lodging covers only the employer's costs of operating and maintaining a room, and not any profits.
The innkeeper argued the bed-and-breakfast should have been prevented from claiming any credit for board and lodging since it failed to keep required records about the actual costs of the room. But instead, the 4th Circuit said the bed-and-breakfast could try to reconstruct the records. It sent the case back to a lower court to decide whether the reconstructed records are reasonable and, if so, assess the wages due to the innkeeper.
'Reasonable Agreement' Has No Bearing on Credit for Board and Lodging
Also at issue in the Balbed case was a written contract between the bed-and-breakfast and the innkeeper about her job duties and wages.
The bed-and-breakfast had maintained this contract constituted a "reasonable agreement" under an FLSA regulation that allows live-in employees who reside on their employer's premises - thereby making it difficult to determine the exact number of hours worked - to agree with their employers about compensable working time.
The lower court had agreed not only that the contract was a "reasonable agreement" but also that this exempted the bed-and-breakfast from the requirements to keep records and calculate costs before claiming a minimum wage credit for board and lodging.
The 4th Circuit reversed, holding that the "reasonable agreement" regulation provides only a limited exception to the general requirement that an employee must be compensated for all hours actually spent at work and "has no bearing" on an employer's FLSA obligations when supplementing cash wages with in-kind compensation like board or lodging.
The 4th Circuit sent the case back to the lower court to decide whether the contract was a "reasonable agreement" in light of the new issues raised by the appellate court.