New FLSA Opinion Letters Address Rounding, Bonuses and Paralegals
Author: Michael Cardman, XpertHR Legal Editor
July 1, 2019
The US Department of Labor (DOL) has issued three new Fair Labor Standards Act (FLSA) opinion letters, which address:
- Permissible rounding practices for calculating an employee's hours worked;
- The calculation of overtime pay for nondiscretionary bonuses paid on a quarterly and annual basis; and
- The application of the highly compensated employee exemption to paralegals.
An opinion letter is an official, written opinion from the DOL's Wage and Hour Division (WHD) describing how a particular law applies to specific circumstances. If an employer requests an opinion letter from the WHD, provides the agency with all the pertinent facts regarding its particular situation, receives an opinion letter from the WHD and then follows the opinion letter in good faith, it will be shielded from liability for any minimum wage and/or overtime violations involving the practices described in its letter.
Even if they had not requested an opinion letter themselves, other employers that have identical fact patterns also can be shielded from liability if they follow an opinion letter. However, an employer should exercise caution before relying on another employer's opinion letter because any variation in the fact pattern can nullify its defense.
Rounding to Two Decimal Points
In the opinion letter FLSA 2019-9, the DOL concluded that a method of rounding hours worked complies with FLSA regulations.
FLSA regulations allow employers to round employees' starting and stopping times to the nearest five minutes, or to the nearest one-tenth or quarter of an hour, as long as this rounding does not result in a failure to count as hours worked all the time employees have actually worked over a period of time.
Rather than round to the nearest five minutes, or to the nearest one-tenth or quarter of an hour, the employer that requested the opinion letter uses software that rounds to the nearest two decimal points.
Specifically, employees generally clock in and out for each work period using a time clock or computer and the payroll software converts the amount of time an employee records working in each work period into a numerical figure in decimal form extended out to six decimal points (e.g., 7 hours and 30 minutes converts to 7.500000 hours). The payroll software then totals the converted hours (extended to six decimal points) for each work period on each working day to calculate a numerical figure for daily hours, which is also extended out to six decimal points. Next, the software rounds that number to two decimal points - if the third decimal is less than .005, the second decimal stays the same (e.g., 6.784999 hours worked rounds down to 6.78 hours); but if the third decimal is .005 or greater, the second decimal rounds up by 0.01 (e.g., 6.865000 hours worked in a work day rounds up to 6.87 hours). Finally, the software calculates daily pay by multiplying the rounded daily hours number by the [employees' wage].
Noting that the software rounds an employee's daily hours downward by no more than 0.29994 minutes per day, and rounds an employee's daily hours upward by as much as 0.3 minutes per day, the DOL concluded that this method of rounding complies with the FLSA.
Nondiscretionary Bonuses Paid on a Quarterly and Annual Basis
The second opinion letter, FLSA 2019-7, involved nondiscretionary bonuses that are a fixed percentage of straight-time wages received over multiple workweeks, one paid on an annual basis and another on a quarterly basis.
Nondiscretionary bonuses, which an employer contracts, agrees or makes a promise to pay, such as when an employee successfully makes a quote, must be included in the regular rate of pay when calculating overtime under the FLSA.
Because the annual bonus described is not tied to straight-time or overtime hours actually worked, the employer must, after paying the annual bonus, recalculate the regular rate for each workweek in the bonus period and pay the overtime compensation due on the annual bonus, the DOL opined. However, after paying the quarterly percentage bonus on straight-time and overtime wages, the employer need not recalculate the regular rate for each workweek in the bonus period to include this quarterly bonus.
Highly Compensated Employee Exemption for Paralegals
The third opinion letter, FLSA 2019-8, concerned the classification of certain highly paid paralegals.
Because the paralegals' job duties - which include keeping and maintaining corporate and official records, assisting the finance department with bank account matters, and budgeting - are "directly related to management or general business operations," the DOL said they perform at least one of the duties of an overtime-exempt administrative employee.
Since the paralegals also receive total annual compensation of at least $100,000, they qualify as highly compensated employees who are exempt from the FLSA's overtime requirements, the DOL concluded.