Introduction

Yet another Trump administration change from an Obama administration policy: the U.S. Department of Labor (DOL) is once again issuing opinion letters and will continue to do so in the future. In the past, the DOL would issue such letters in response to questions from covered entities (usually private employers) about how the Department would apply the Fair Labor Standards Act (FLSA) and its regulations to particular factual scenarios. Those opinion letters, posted online for public review, were widely recognized as an employer-friendly practice, because they helped businesses understand their statutory obligations. In some circumstances, an employer could assert reliance on an opinion letter as the basis of a "good faith" defense against certain FLSA claims.

In June of last year, the Trump administration vowed to resume issuing opinion letters—a practice that was discontinued in 2010 under President Obama. On January 5, the Trump administration began following through on its promise when the DOL reinstated 17 opinion letters from 2009. All 17 were prepared and signed in January 2009 in the final days of the Bush administration, but later were effectively withdrawn by the DOL under the Obama administration.

You've probably already heard about the reissuance of this group of opinion letters. We thought you might find it helpful to know about five of them in particular. The first four, on their face, are applicable outside of the particular industries from which they arise. The fifth addresses the status of a "Client Service Manager"—someone responsible for a client account—and thus provides helpful guidance to the broad swath of employers who employ people with similar responsibilities. The remaining 12 opinion letters consist largely of the DOL accepting some applications of the administrative exemption (e.g., for employees who cultivate relationships and direct operations for an off-site event1) while rejecting others (e.g., for employees who primarily conduct investigations, crunch data, and generate reports2).

1. FLSA2018-14: Calculation of salary deductions and section 13(a)(1) salary basis

This opinion letter reminds employers not to overlook the "salary basis" requirement for overtime-exempt employees and the salary deductions that endanger those exemptions. As a general rule, exempt employees must be paid on a "salary basis"3 – i.e., a predetermined amount, not subject to change based on the quantity or quality of the work. As such, the FLSA prohibits "docking" an exempt employee's pay, except in a few specific situations.

This opinion letter tackles two exceptions to the "no docking" rule: first, when an exempt employee is absent for "one or more full days because of personal reasons" (vacation time, PTO, etc.), the employer may deduct a full day's pay for each full day missed; and, second, when an exempt employee misses work for "one or more full days" because of "sickness or disability," the employer may deduct pay in accordance with a "bona fide plan, policy or practice." The employer, for example, may tap into the employee's accrued sick leave, or reduce the employee's salary for a full-day absence if he or she has exhausted all accrued leave, assuming a bona fide plan exists. Notably, however, the FLSA prohibits salary deductions for partial-day absences.

But what about partial-day salary deductions for full-day absences? The DOL gives a nod of approval in this opinion letter. Specifically, it explains that, if an employee is absent for one or more full days but does not have enough time in his or her leave bank to cover the whole absence, the employer may deduct pay for any portion of the full-day absence not covered by the leave bank. Largely consistent with prior guidance on the subject, the DOL approves this employer's combined approach—the partial salary deduction plus an insufficient leave balance—to offset an exempt employee's full day away from work.

The DOL also blesses the employer's method for salary deductions. The letter concludes that, when an exempt employee is absent for a full day but was scheduled to work more or less than his or her regular shift, the employer may deduct pay in proportion to the hours he or she actually missed.

2. FLSA2018-7: Salary deductions for full-day absences based on hours missed and section 13(a)(1) salary basis

Much like FLSA2018-14, discussed above, this opinion letter addresses how to calculate permissible salary deductions. Here, a hospital asks: What is the proper method for calculating a salary deduction for a registered nurse (an exempt professional) who was unavailable for an on-call weekend shift, scheduled from 2:30 p.m. on Friday to 6:30 a.m. on Monday?

Reciting the "no docking" rule and its exceptions, the DOL confirms that the hospital may deduct for only full-day absences, and may do so based on the number of work hours the RN was actually unable to work under one of the exceptions. This means that, for Friday's absence, it could properly deduct 9.5 hours from the RN's salary (2:30 p.m. to midnight). And, although this letter generally restates the DOL's position under existing guidance, it illustrates for employers a proper compensation method in an atypical scheduling scenario.

3. FLSA2018-11: Job bonuses and Regular Rate of Pay

Employers frequently ask which types of remuneration must be included in calculating an employee's regular rate of pay. In this opinion letter, an oilfield services company requests an opinion about whether "job bonuses" given to non-exempt equipment operators should be included in the employees' regular rate of pay. The "job bonus" would be a flat amount per day. Consistent with the FLSA and the DOL's practice, the DOL advises that the "regular rate" includes "all remuneration for employment paid to, or on behalf of, the employee," with limited exceptions. Therefore, the opinion letter concludes that such a "job bonus" should be included in the non-exempt equipment operators' regular rate of pay.

This renewed opinion letter appears to treat this "job bonus" as a non-discretionary bonus, which, in accordance with the FLSA regulations, must be included in the regular rate of pay. According to the DOL, non-discretionary bonuses include those that are promised to, and expected by, employees, and that typically encourage them to work more steadily, rapidly, or efficiently, or remain with a facility. All discretionary bonuses, i.e., those that are at the exclusive discretion of the employer, are excluded from an employee's regular rate of pay. The opinion letter does not change the landscape of how employers should apply bonuses to their regular rate of pay determinations following the withdrawal of the opinion letter in 2009.

4. FLSA2018-9: Year-end non-discretionary bonus

In this opinion letter, the employer contests a previous Wage and Hour Opinion Letter from 1973 (the "1973 Opinion Letter") on the proper calculation of "percentage bonuses." Generally, a percentage bonus is a bonus plan that provides for additional compensation in the form of a bonus as a percentage of an employee's earnings. Here, the employer asks whether a year-end percentage bonus that remits an equal percentage to employees of their straight time and overtime earnings during the past year satisfies the employer's FLSA obligations where it does not include payments to its non-exempt employees that are properly excluded from the regular rate pursuant to section 7(e) of the FLSA (e.g., travel expenses and discretionary bonuses). Overruling the 1973 Opinion Letter, the DOL confirms that such percentage bonuses do not need to include exempt payments made to employees throughout the year.

As you know, the FLSA requires that overtime hours worked must be compensated at one and one-half times the employee's regular rate of pay. As discussed above, the regular rate of pay includes "all remuneration for employment paid to, or on behalf of, the employee," with limited exceptions. The DOL reasons that when the percentage bonus payment compensates the employee for an equal percentage of his or her straight-time pay and overtime pay, such structure fully satisfies the overtime provisions of the FLSA, and arithmetically results in the same total payment at the end of the year. Therefore, no additional overtime calculations are required. To illustrate this principle, the opinion letter provides a helpful example scenario.

This renewed opinion letter affirmatively withdraws former guidance on the topic, but also cites to more recent opinion letters that confirm its result. Therefore, while it may not necessarily change the relevant considerations an employer should make, it does provide official guidance on how employers should treat percentage bonuses. Employers that dole out percentage bonuses, whether weekly, annually, or otherwise, should use this opinion letter for guidance.

This and the preceding opinion letter remind employers how different forms of payment, such as bonus programs, factor into the calculation of an employee's regular rate of pay. Failure to include certain forms of payment leads to inadequate payment of overtime, which may in turn lead to liability under the FLSA.

5. FLSA2018-8: Client service managers and section 13(a)(1)

In FLSA2018-8, the DOL concludes that an insurance agency's client consultants, called Client Services Managers (CSMs), qualify as exempt administrative employees. CSMs' primary duties include "the exercise of discretion and independent judgment [on] matters of significance"—a necessary element of the exemption—because CSMs:

  • formulate recommendations after analyzing risks, costs, clients' needs, and available insurance packages, which are "significant matters" to clients;
  • execute binding insurance contracts on behalf of the agency and/or clients; and
  • are generally free to advise clients without immediate oversight or prior approval.

With respect to the financial services industry, this letter also supports the well-established distinction between employees who advise and manage clients (and generally are exempt), and employees who primarily sell the company's product (and generally are not). The agency requesting this opinion, for example, could show that it employed a separate group of workers to sell insurance products.

Conclusion

These reinstated letters are significant not because they change the DOL's approach to determining employers' statutory obligations—generally, they do not—but rather because they provide clarity to employers in areas that are frequently unclear or confusing. We are of course available to answer your questions about these reinstated letters or any other aspect of your compliance with the Fair Labor Standards Act.

[1] See FLSA2018-15 (Exempt Coordinators of freelance demonstrators at remote marketing events) and FLSA2018-10 (Exempt Construction Supervisor, the company's "sole representative at the worksite").

[2] See FLSA2018-13 (Non-exempt Fraud Analysts and Special Agents, performing "production" not "administrative" work).

[3] There are several exceptions or alternatives to the "salary-basis" requirement, including for outside sales employees, teachers, doctors and lawyers, exempt computer employees, and administrative and professional employees paid on a fee basis, consistent with 29 C.F.R. § 541.605.

Introduction

Yet another Trump administration change from an Obama administration policy: the U.S. Department of Labor (DOL) is once again issuing opinion letters and will continue to do so in the future. In the past, the DOL would issue such letters in response to questions from covered entities (usually private employers) about how the Department would apply the Fair Labor Standards Act (FLSA) and its regulations to particular factual scenarios. Those opinion letters, posted online for public review, were widely recognized as an employer-friendly practice, because they helped businesses understand their statutory obligations. In some circumstances, an employer could assert reliance on an opinion letter as the basis of a "good faith" defense against certain FLSA claims.

In June of last year, the Trump administration vowed to resume issuing opinion letters—a practice that was discontinued in 2010 under President Obama. On January 5, the Trump administration began following through on its promise when the DOL reinstated 17 opinion letters from 2009. All 17 were prepared and signed in January 2009 in the final days of the Bush administration, but later were effectively withdrawn by the DOL under the Obama administration.

You've probably already heard about the reissuance of this group of opinion letters. We thought you might find it helpful to know about five of them in particular. The first four, on their face, are applicable outside of the particular industries from which they arise. The fifth addresses the status of a "Client Service Manager"—someone responsible for a client account—and thus provides helpful guidance to the broad swath of employers who employ people with similar responsibilities. The remaining 12 opinion letters consist largely of the DOL accepting some applications of the administrative exemption (e.g., for employees who cultivate relationships and direct operations for an off-site event1) while rejecting others (e.g., for employees who primarily conduct investigations, crunch data, and generate reports2).

1. FLSA2018-14: Calculation of salary deductions and section 13(a)(1) salary basis

This opinion letter reminds employers not to overlook the "salary basis" requirement for overtime-exempt employees and the salary deductions that endanger those exemptions. As a general rule, exempt employees must be paid on a "salary basis"3 – i.e., a predetermined amount, not subject to change based on the quantity or quality of the work. As such, the FLSA prohibits "docking" an exempt employee's pay, except in a few specific situations.

This opinion letter tackles two exceptions to the "no docking" rule: first, when an exempt employee is absent for "one or more full days because of personal reasons" (vacation time, PTO, etc.), the employer may deduct a full day's pay for each full day missed; and, second, when an exempt employee misses work for "one or more full days" because of "sickness or disability," the employer may deduct pay in accordance with a "bona fide plan, policy or practice." The employer, for example, may tap into the employee's accrued sick leave, or reduce the employee's salary for a full-day absence if he or she has exhausted all accrued leave, assuming a bona fide plan exists. Notably, however, the FLSA prohibits salary deductions for partial-day absences.

But what about partial-day salary deductions for full-day absences? The DOL gives a nod of approval in this opinion letter. Specifically, it explains that, if an employee is absent for one or more full days but does not have enough time in his or her leave bank to cover the whole absence, the employer may deduct pay for any portion of the full-day absence not covered by the leave bank. Largely consistent with prior guidance on the subject, the DOL approves this employer's combined approach—the partial salary deduction plus an insufficient leave balance—to offset an exempt employee's full day away from work.

The DOL also blesses the employer's method for salary deductions. The letter concludes that, when an exempt employee is absent for a full day but was scheduled to work more or less than his or her regular shift, the employer may deduct pay in proportion to the hours he or she actually missed.

2. FLSA2018-7: Salary deductions for full-day absences based on hours missed and section 13(a)(1) salary basis

Much like FLSA2018-14, discussed above, this opinion letter addresses how to calculate permissible salary deductions. Here, a hospital asks: What is the proper method for calculating a salary deduction for a registered nurse (an exempt professional) who was unavailable for an on-call weekend shift, scheduled from 2:30 p.m. on Friday to 6:30 a.m. on Monday?

Reciting the "no docking" rule and its exceptions, the DOL confirms that the hospital may deduct for only full-day absences, and may do so based on the number of work hours the RN was actually unable to work under one of the exceptions. This means that, for Friday's absence, it could properly deduct 9.5 hours from the RN's salary (2:30 p.m. to midnight). And, although this letter generally restates the DOL's position under existing guidance, it illustrates for employers a proper compensation method in an atypical scheduling scenario.

3. FLSA2018-11: Job bonuses and Regular Rate of Pay

Employers frequently ask which types of remuneration must be included in calculating an employee's regular rate of pay. In this opinion letter, an oilfield services company requests an opinion about whether "job bonuses" given to non-exempt equipment operators should be included in the employees' regular rate of pay. The "job bonus" would be a flat amount per day. Consistent with the FLSA and the DOL's practice, the DOL advises that the "regular rate" includes "all remuneration for employment paid to, or on behalf of, the employee," with limited exceptions. Therefore, the opinion letter concludes that such a "job bonus" should be included in the non-exempt equipment operators' regular rate of pay.

This renewed opinion letter appears to treat this "job bonus" as a non-discretionary bonus, which, in accordance with the FLSA regulations, must be included in the regular rate of pay. According to the DOL, non-discretionary bonuses include those that are promised to, and expected by, employees, and that typically encourage them to work more steadily, rapidly, or efficiently, or remain with a facility. All discretionary bonuses, i.e., those that are at the exclusive discretion of the employer, are excluded from an employee's regular rate of pay. The opinion letter does not change the landscape of how employers should apply bonuses to their regular rate of pay determinations following the withdrawal of the opinion letter in 2009.

4. FLSA2018-9: Year-end non-discretionary bonus

In this opinion letter, the employer contests a previous Wage and Hour Opinion Letter from 1973 (the "1973 Opinion Letter") on the proper calculation of "percentage bonuses." Generally, a percentage bonus is a bonus plan that provides for additional compensation in the form of a bonus as a percentage of an employee's earnings. Here, the employer asks whether a year-end percentage bonus that remits an equal percentage to employees of their straight time and overtime earnings during the past year satisfies the employer's FLSA obligations where it does not include payments to its non-exempt employees that are properly excluded from the regular rate pursuant to section 7(e) of the FLSA (e.g., travel expenses and discretionary bonuses). Overruling the 1973 Opinion Letter, the DOL confirms that such percentage bonuses do not need to include exempt payments made to employees throughout the year.

As you know, the FLSA requires that overtime hours worked must be compensated at one and one-half times the employee's regular rate of pay. As discussed above, the regular rate of pay includes "all remuneration for employment paid to, or on behalf of, the employee," with limited exceptions. The DOL reasons that when the percentage bonus payment compensates the employee for an equal percentage of his or her straight-time pay and overtime pay, such structure fully satisfies the overtime provisions of the FLSA, and arithmetically results in the same total payment at the end of the year. Therefore, no additional overtime calculations are required. To illustrate this principle, the opinion letter provides a helpful example scenario.

This renewed opinion letter affirmatively withdraws former guidance on the topic, but also cites to more recent opinion letters that confirm its result. Therefore, while it may not necessarily change the relevant considerations an employer should make, it does provide official guidance on how employers should treat percentage bonuses. Employers that dole out percentage bonuses, whether weekly, annually, or otherwise, should use this opinion letter for guidance.

This and the preceding opinion letter remind employers how different forms of payment, such as bonus programs, factor into the calculation of an employee's regular rate of pay. Failure to include certain forms of payment leads to inadequate payment of overtime, which may in turn lead to liability under the FLSA.

5. FLSA2018-8: Client service managers and section 13(a)(1)

In FLSA2018-8, the DOL concludes that an insurance agency's client consultants, called Client Services Managers (CSMs), qualify as exempt administrative employees. CSMs' primary duties include "the exercise of discretion and independent judgment [on] matters of significance"—a necessary element of the exemption—because CSMs:

  • formulate recommendations after analyzing risks, costs, clients' needs, and available insurance packages, which are "significant matters" to clients;
  • execute binding insurance contracts on behalf of the agency and/or clients; and
  • are generally free to advise clients without immediate oversight or prior approval.

With respect to the financial services industry, this letter also supports the well-established distinction between employees who advise and manage clients (and generally are exempt), and employees who primarily sell the company's product (and generally are not). The agency requesting this opinion, for example, could show that it employed a separate group of workers to sell insurance products.

Conclusion

These reinstated letters are significant not because they change the DOL's approach to determining employers' statutory obligations—generally, they do not—but rather because they provide clarity to employers in areas that are frequently unclear or confusing. We are of course available to answer your questions about these reinstated letters or any other aspect of your compliance with the Fair Labor Standards Act.

[1] See FLSA2018-15 (Exempt Coordinators of freelance demonstrators at remote marketing events) and FLSA2018-10 (Exempt Construction Supervisor, the company's "sole representative at the worksite").

[2] See FLSA2018-13 (Non-exempt Fraud Analysts and Special Agents, performing "production" not "administrative" work).

[3] There are several exceptions or alternatives to the "salary-basis" requirement, including for outside sales employees, teachers, doctors and lawyers, exempt computer employees, and administrative and professional employees paid on a fee basis, consistent with 29 C.F.R. § 541.605.