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.