Archive for January, 2015

The regular rate exclusions: Paying people for not doing work

I know it has been a couple of weeks since we posted anything and in my defense I have been running all over the state. Beginning of a new year and all that.  On the other hand, that is not really an excuse given that I still have a couple of posts that Emily wrote to post.  So I will try to get back to a more regular weekly schedule.  I promise.

We’re still talking about what not to include in your calculation of the regular rate for overtime purposes under the FLSA. Many employers provide paid time off of some kind for their employees, whether it be for illness, vacation, or being stuck in your driveway, something that happened to us in Michigan a lot last winter. The question is, do you have to include that illness or vacation pay in the regular rate when calculating overtime payments? The regulations exclude:

(1)  Payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment

29 CFR § 778.218(d). Vacation, illness, and holiday pay are pretty self-explanatory – the regs add that this rule applies “[w]here the payments are in amounts approximately equivalent to the employee’s normal earnings during a similar period of time.” The regs also clarify that this provision applies to absences that are “infrequent or sporadic or unpredictable” as opposed to regular events like weekends or meal periods. 29 CFR § 778.218(a), (d).

Consider paid time off for holidays separately from any holiday premium paid – for example, paying double time or time and one-half for working on a holiday. We’ll deal with that later. This provision is only for hours the employee did not actually work.  You know, regular old holiday pay.

“Failure of the employer to provide sufficient work” is a little trickier. The regs give examples here: “where the employee would normally be working but for . . . a machinery breakdown, failure of expected supplies to arrive, weather conditions affecting the ability of the employee to perform work and similarly unpredictable obstacles beyond the control of the employer.” A regular slow period at work doesn’t count. 29 CFR § 778.218(c).  So if the employee is at work and not working because the machine is broken and they have to wait for it to be fixed before they can start working again, that time counts toward the regular rate.  But if the employee is sent home or doesn’t have to report to work because the machine is broken and you have a policy to pay them anyway, that time does not count.

The regs also give some guidance on what “other similar causes” are for the purposes of this provision. The key is infrequency and unpredictability: the regs give jury duty, death in the family, and weather conditions as examples. 29 CFR § 778.218(d).

The other piece to this provision is reimbursable business expenses, which is relatively straightforward. To fall under the exclusion, business expenses must be paid for expenses made on the employer’s behalf. The regs give some examples: amount spent for purchasing tools or supplies for the employer, purchasing or laundering required uniforms, transportation and other living expenses incurred by an employee traveling on the employer’s behalf, and – saving the best for last – “supper money,” “to cover the cost of supper when [the employee] is requested by his employer to continue work during the evening hours.” 29 CFR § 778.217(b).

You can’t cut down on the amount you pay in overtime by characterizing pay as reimbursement, though. Everyday expenses like rent, food, and ordinary transportation to and from work are incurred on the employee’s behalf, and if you decide to reimburse for those expenses for some reason, the payment must be included in the daily rate calculation. The amount of the reimbursement must also approximate the expense incurred – no reimbursing $8.25 for a $1.75 cup of coffee to disguise a higher pay rate. However, a per diem type of reimbursement may be excluded from the regular rate, even if employees are not required to submit receipts, if it is reasonable under the circumstances. Barry v. Excel Group, Inc., 288 F.3d 252, 253 (5th Cir. 2002). For example, for a day trip in Cleveland, a $50 per diem might be reasonable, but a $500 per diem would not be.

New Michigan Law Allows for Veterans’ Preference in Employment.

Wait a minute, it’s not Friday and this is not the FLSA, what is going on? Why am I sitting at my desk on a Saturday writing a blog post? Well, let me tell you. Late yesterday I got an email from one of our partners, Rob Dubault, a brilliant labor lawyer by the way, notifying me (and the other members of our practice group at good old Warner Norcross and Judd LLP) that Governor Snyder had just signed into law a new piece of legislation that applied to Michigan employers. I didn’t have time to read or write about it last night, so here I am.

So what is this new law that brings me into the office on a snowy Saturday in Michigan? It’s House Bill 5418, which will now be “known and cited as” the “Private Employer’s Veterans’ Preference Policy Act.” Well, what does this new law do? I’ll tell you what, it is so short that I’m just going to type the whole thing right into this blog post.

The People of the State of Michigan enact:

Sec. 1. (1) This act shall be known and may be cited as the “private employer’s veterans’ preference policy act”.

(2) As used in this act:

(a) “Private employer” means a sole proprietor, corporation, partnership, limited liability company, or other private entity with 1 or more employees.

(b) “Veteran” means an individual who meets 1 or more of the following:

(i) Has served on active duty with the armed forces of the United States for a period of more than 180 days and was discharged or released from active duty with other than a dishonorable discharge.

(ii) Was discharged or released from active duty with the armed forces of the United States because of a service‑connected disability

(iii) Was discharged or released from duty with other than a dishonorable discharge from service as a member of are serve or national guard component of the armed forces of the United States under an order to active duty, excluding active duty for training.

(c) “Veterans’ preference employment policy” means a private employer’s voluntary preference for hiring, promoting, or retaining a veteran over another equally qualified applicant or employee.

Sec. 2. (1) A private employer may adopt and apply a voluntary veterans’ preference employment policy.

(2) A veterans’ preference employment policy shall be in writing and shall be applied uniformly to employment decisions regarding the hiring or promotion of veterans or the retention of veterans during a reduction in the workforce.

This act is ordered to take immediate effect.

So here is what it does: It allows a private employer to put in place a written policy that gives preference to veterans in hiring, promotions and retention during a reduction in force.

Three things I want you to notice here: First, this law goes into effect immediately. I’m not going to bother with the why of governmental procedure in Michigan, just know that the law is now law. Second, a policy giving preference, if you are going to do one, has to be in writing. No unofficial policy that you can rely on, a written policy. And finally, take notice of the word, “MAY”. That’s right, the law does not require an employer to give preference, it allows an employer to do this.

So if you want to do this, give Rob or me a call.  You can find Rob here.

The regular rate exclusions: percentage bonuses

We talked already about discretionary bonuses and gifts, and how any bonus that is not truly discretionary or truly a gift must be included in the regular rate. If wondering about if the bonuses you pay are really discretionary is giving you chest pain, a percentage-based bonus may be right for you.

In a percentage bonus structure, you pay the employee a percentage of both their straight time pay and their overtime earnings. For example, if I work for 48 hours at $100 per hour (I can dream, can’t I?), and my employer pays a bonus equal to 10% of my straight time pay and 10% of my time-and-a-half overtime earnings, the bonus payment need not be calculated into the regular rate even if the bonus is not discretionary. How can this be you ask? Simple, because the percentage is calculated both on straight time pay and overtime earnings, the bonus adequately accounts for overtime worked – as the Department of Labor puts it, “as an arithmetic fact.” 29 CFR § 778.503. Yeah, arithmetic. We love arithmetic in this blog, . . . no wait, we hate arithmetic, but we will make this one exception. So if I work a 50 hour week, 40 hours at $100 per hour and 10 hours and $150 per hour, I would make $4,000 in straight time pay and $1,500 in overtime for a total of $5,500. If my employer paid me a 10% bonus of $550, it need not recalculate the regular rate based on the bonus because the bonus includes both 10% of straight time pay, $400, and 10% of overtime earnings, $150.

The catch is that you can’t use a different percentage for straight time pay and overtime pay, and you can’t use a percentage bonus system to deliberately evade FLSA requirements. The regs give an example of a plan that a scoundrel (or to give the benefit of the doubt, someone who is confused as to overtime requirements), could use to evade overtime pay requirements. I could pay an employee $300 per week no matter how many hours were worked. I could characterize the rate paid for the first 40 hours as the “regular rate,” and the rate paid for any overtime hours at time and one-half of the regular rate. I could then give a “bonus” as a percentage of overall earnings. The trick is that the percentage changes every week depending on the number of hours worked, and I really only pay my worker $300 per week. 29 CFR § 778.502. They call it a pseudo-bonus or a sham – not the pretty kind you put on your pillows, either. (Don’t forget Emily wrote this, I don’t even know what a pillow sham is. Steve).

Since this is a short post, now is as good a time as any to cover a miscellaneous exclusion. Talent fees in the radio and television industries may be excluded from the regular rate. Hopefully, if you are in one of those industries, you know what those are. If you don’t, the regs define them at 29 CFR § 550.1. Again, if you have questions, you should contact your trusty labor lawyer, who has always been there for you.