Check Your Math: DOL Confirms Regular Rate Must be Calculated Each Workweek

On December 21, 2018, the DOL addressed whether an anonymous employer’s compensation plan, which pays an average hourly rate that may vary from workweek to workweek, complies with the FLSA.

The employer provides health aide services to patients in their homes.  During the workday, some of its employees travel between patient locations.  To calculate an employee’s weekly base pay, the employer multiplies the time that the employee spent with patients by the employee’s pay rate.  Then, the employer divides the product by the employee’s total hours worked, including travel time, for which there is no specified rate, and time with patients.  And, the employer guarantees that the quotient meets federal and state minimum wage requirements.

According to the employer, $10.00 per hour is a “typical standard rate of pay . . . with a [patient] including travel time.”  And, if an employee works more than 40 hours -- total paid hours plus travel time -- in a workweek, the employer pays the employee $15.00 per hour (time and one-half of $10.00 per hour), for the excess.

The employer’s plan, according to the opinion letter, complies with the FLSA’s minimum wage requirement.  That’s because, even though an employee’s average hourly pay rate may vary from workweek to workweek, the employer always ensures that rate exceeds the FLSA’s minimum for all hours worked.

But, according to the DOL, the plan may not comply with the FLSA’s overtime requirement.  Why?  Because if the employer always assumes a $10.00 per hour regular rate when calculating the overtime premium, it will underpay employees whose actual regular rate exceeds that amount.  In the words of the DOL, “[n]either an employer nor an employee may arbitrarily choose the regular rate of pay; it is an ‘actual fact’ based on ‘mathematical computation.’”  

The DOL added, however, that the employer’s compensation plan complies with the FLSA’s overtime requirements for employees whose actual regular pay rate falls short of $10.00 per hour.  That’s because an employer may choose to pay an overtime premium that exceeds the statutory minimum.

In sum, when determining whether an employer has satisfied the FLSA’s minimum wage and overtime requirement, there are no shortcuts.  For each nonexempt employee, the employer must calculate, workweek by workweek, the employee’s regular and overtime rate.  Failure to do so could expose the employer to an DOL enforcement action or a civil suit to recover unpaid wages, liquidated damages, plus interest and perhaps private attorneys’ fees and costs.  Employers must also be mindful that many state, county and city minimum wage rates are higher than the FLSA’s minimum wage.