The Department of Labor has issued a new memorandum clarifying the circumstances under which an employer may credit towards wages the value of lodging provided to workers. This clarification is particularly relevant to employers of live-in home care workers, since such employees are no longer exempt from the Fair Labor Standards Act’s (FLSA) overtime and minimum wage provisions.
Under the FLSA, employers may count as wages “the reasonable cost … to the employer of furnishing such employee with board, lodging, or other facilities.” To take advantage of this provision, an employer must satisfy all of the following five requirements:
- The lodging must be regularly provided by the employer or similar employers;
- The employee must voluntarily accept the lodging;
- The lodging must be furnished in compliance with all applicable laws;
- The lodging must be provided primarily for the benefit of the employee rather than the employer; and
- The employer must maintain accurate records of the costs incurred in furnishing the lodging.
The DOL’s bulletin clarifies that live-in home care workers will typically satisfy the requirements that the lodging be regularly provided and voluntarily accepted as a condition of the job. Proper zoning and permits are required, and the lodging may not violate overcrowding ordinances or otherwise be substandard.
Whether the lodging is provided primarily for the benefit of the employee or the employer is a more nuanced question. One factor to consider is whether the live-in employee is allowed specific time periods during which he or she is completely relieved from any duties. In addition, these periods must be long enough to allow the employee to use the time effectively for his or her own purposes, such as for sleeping, eating, watching television, or reading. Thus, the DOL bulletin states that lodging provided to employees who provide round-the-clock care, as opposed to assistance for particular activities at specified time periods in the day, such as bathing and dressing, is provided for the benefit of the employer and not eligible for wage credit. The adequacy of the lodging is also relevant in this regard. For example, private living quarters where the employee is able to leave his or her belongings and engage in other normal private pursuits weighs in favor of allowing the credit; on the other hand, if an employee is only provided a cot or a couch to sleep on in a shared living space, the DOL will likely conclude that the lodging is provided primarily for the benefit of the employer.
The last requirement that must be met to qualify for the wage credit is accurate recordkeeping. Under the FLSA, the employer’s records must include “itemized accounts showing the nature and amount of any expenditures entering into the computation of the reasonable cost,” such as proof of mortgage or rental payments and utility bills. An exception exists for employers of live-in domestic service employees only – rather than the reasonable cost or fair value of the housing provided, such employers may claim up to seven and one-half times the federal minimum wage for each week lodging is provided toward wages even if such records are not maintained.
In addition, if the lodging wage credit results in an employee receiving less in cash wages than the federal minimum wage, the employer must maintain records showing on a workweek basis the additions to and deductions from the employee’s wages. Such records must also be maintained if an employer takes a lodging wage credit with respect to an employee who is owed overtime in a particular workweek.
Once an employer determines that the requirements above have been met, the employer must use the lesser of the reasonable cost or fair value of the lodging to properly calculate the employee’s resulting wages. To be reasonable, the cost of lodging may not exceed its actual cost to the employer, nor may it include a profit to the employer or any affiliated person. Fair value, on the other hand, is determined irrespective of actual cost, and is determined according to the respective rental market.
To calculate an employee’s hourly rate including the lodging credit, the value of the lodging as determined above is added to the employee’s cash wages, excluding overtime compensation, and divided by the hours worked in a given week. The credit goes towards the employer’s minimum wage obligation but is also included in determining the employee’s regular rate of pay for purposes of overtime. Lodging credit may be the sole payment an employee receives, if it is sufficient to cover the employer’s minimum wage obligation.
Per the FLSA regulations, lodging credit may not be used for the purpose of evading paying overtime. The DOL is suspicious of employers who claim the credit only in overtime weeks or in a greater amount in overtime weeks as a sign of potential abuse.
Lastly, where an employee is jointly employed by more than one employer, as is often the case with home care workers, all employers may take credit toward their joint wage obligation, regardless of which employer pays for the housing. In such circumstances, the amount properly claimed as lodging credit and the employee’s cash wages are combined to determine the total wages received for purposes of the FLSA’s minimum wage and overtime provisions.