This week, the Department of Labor’s Wage and Hour Division (DOL) issued four opinion letters addressing a range of wage and hour issues including application of the fluctuating workweek payment method, pay methods for part-time professionals, business-related expenses, the learned professional exemption, and application of the retail or service establishment exemption. Each letter addresses multiple DOL regulations offering practical guidance to a broad range of employers. We have highlighted below the general analysis in each letter that may be applied to multiple employers. While these opinion letters offer useful guidance on interpreting the DOL regulations, many courts will disregard any interpretation judged to go beyond the plain language of the Fair Labor Standards Act or the specific regulation at issue.
Fluctuating Workweek – WHD Opinion Letter FLSA2020-14
The DOL addressed two rules related to the fluctuating workweek method of paying non-exempt employees. First, the DOL reaffirmed that an employee’s weekly hours must fluctuate, but do not need to fluctuate both below and above 40 hours each week. WHD Opinion Letter FLSA2020-14 at 4 (August 31, 2020). Consequently, an employee whose hours fluctuate only above 40 hours each week may still be eligible to be paid using the fluctuating workweek method, assuming all other requirements are met. Second, the DOL noted that employers are very limited in what they can deduct from the guaranteed salary of employees who are paid using the fluctuating workweek method. Specifically, employers “may not make deductions from an employee’s pay for absences occasioned by the employee, except for occasional disciplinary deductions for willful tardiness or absences or infractions of major work rules.” WHD Opinion Letter FLSA2020-14 at 4 (August 31, 2020).
Explaining the Limitations of the Highly Compensated Employee Exemption; Applying a Daily Rate and Additional Compensation to the Salary Basis Test; and Updating the Learned Professional Exemption – WHD Opinion Letter FLSA2020-13
A unique set of facts was presented to the DOL in its letter addressing the highly compensated employee exemption, the learned professional exemption and the salary basis test. Even so, the DOL provided guidance that can be applied generally.
Highly Compensated Employee Exemption Requires the Standard Weekly Salary and the Full Annual Highly Compensated Sum
The DOL made it clear that the only exception to the $107,432.00 minimum annual compensation required for the highly compensated employee exemption is for employees who begin working after the year starts or leave work before the year ends. See WHD Opinion Letter FLSA2020-13 at 6 (August 31, 2020). Thus, a part-time employee who is paid a pro rata portion of the minimum annual compensation does not qualify for the highly compensated exemption. Additionally, employees who make the full $107,432.00 minimum annual compensation must also meet the weekly salary basis test including a weekly guaranteed salary of at least $684.00 a week.
Salary Basis Test Is Centered on Weekly Pay
The DOL addressed an employer’s use of a daily rate payment for employees who conduct one-day events. The employees could choose to conduct multiple events each week or none, and the daily rate payment exceeded the minimum salary required under the salary basis test. The DOL concluded this payment did not satisfy the salary basis test because the employees were not paid a predetermined guaranteed amount calculated on a weekly basis. Id. at 5. Here, although the employees were paid the same rate for each day, they were not paid a guaranteed minimum weekly salary for any week in which they conducted any events. Instead, the amounts they were paid each week would differ depending on how many days the employee worked. Thus, the DOL, quoting the Fifth Circuit, said the weekly payment was not actually “pre-determined.” Id. Additionally, the DOL noted that to satisfy the salary basis test, the employee “must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.” Id. Use of a daily rate violates this rule.
Employers Have Broad Flexibility Providing Additional Compensation
Although the DOL emphasized the strict rules governing the guaranteed salary under the salary basis test, the DOL explained that an employer can supplement the guaranteed salary with “additional compensation on a commission, flat, bonus, straight-time, or other basis.” Id. More specifically, the DOL clarified that the additional per-hour payments for work performed were permissible, assuming the salary basis test is met. While true, the opinion letter did not discuss interpretations of the salary basis test that have struck down compensation programs where the additional compensation is both based on hours or days worked and exceeds the amount of the guaranteed salary.
Professional Consulting Gets DOL Recognition
Finally, the DOL analyzed employees who provided corporate management training under the learned professional exemption. While these employees were required to have advanced academic degrees in the subjects of the employees’ duties of either finance, business or education, the employees’ duties were not conducted in a traditional setting. Traditionally, a financial professional analyzes or manages the finances of a business or works in a financial institution, a business professional manages a business, and an educational professional works in an academic institution. Here the professional employees produced and delivered educational programs to corporate executives. The key guidance in the opinion letter is the conclusion by the DOL that because the training conducted by the employees involved advanced finance- and business-related subjects, the employees were performing duties in line with the employees’ profession, which satisfied the duties requirement for the exemption. WHD Opinion Letter FLSA2020-13 at 4 (August 31, 2020). This opinion letter updates the DOL’s interpretation of the learned professional exemption by applying the exemption to a contemporary employment setting.
Expansive Interpretation of the Retail or Service Establishment Exemption – WHD Opinion Letter FLSA2020-11
The DOL applied an expansive view of the retail or service establishment exemption to a company that employs truck drivers who are paid solely on commission to transport fluid waste from oilfields to disposal facilities in trucks that were specifically designed for hauling water. See WHD Opinion Letter FLSA2020-11 (August 31, 2020). The opinion letter relies in part on the May 19, 2020 withdrawal by the DOL of a regulation that included “waste removal contractors” on a list of establishments that had been determined to not be a “retail or service establishment” and, thus, not eligible for the exemption. Id. at 3 (noting the withdrawal of 29 C.F.R. Section 779.317). The DOL analyzed this waste-removal contractor, which was fresh off the list, to determine if it could meet the requirements of the exemption.
The DOL concluded that the waste-removal contractor was a retail or service establishment after analyzing whether the company had a “retail concept” using the factors set forth in 29 C.F.R. Section 779.318(a). The DOL opined that the company “may satisfy the ‘general public’ criterion,‘ so long as they do not require the use of specialized facilities or equipment and the services are not different services than those provided for the general consuming public.’” Id. at 3 (quoting WHD Opinion Letter FLSA2006-22 (June 23, 2006)); (referencing 29 C.F.R. Section 779.318(a) (retail concept criterion “sells goods or services to the general public”)). The DOL also was persuaded that the waste-removal contractor’s trucks were specialized in the same way as trucks that performed waste removal for the general public. The DOL specifically concluded, “[t]o the extent that your client’s services are similar to waste-removal services furnished to the general public, your client may satisfy the ‘sells to the general public’ criterion.” Id. at 4. Among other things, the DOL found that meeting the needs of the company’s customers for waste removal satisfied the factor that the company meets “the everyday needs of the community.” Furthermore, the DOL concluded that because oilfield operators are the “end customer of the waste-removal services[,] sales to them are not sales for resale.” Id. While the company at issue was unique, the DOL’s analysis of the retail concept has broader implications.
Employee Use of Personal Vehicles and Related Reimbursements – WHD Opinion Letter FLSA2020-12
The DOL tackled a common question about a non-exempt employee’s right to reimbursement for expenses related to use of a personal vehicle for work. While the law is clear that reimbursement of an employee’s use of his or her personal vehicle for work may be necessary to avoid a minimum-wage violation, the focus of the opinion letter was the extent of the expense that is reimbursable and how to determine the reimbursement.
How to Determine Expenses Related to Use of a Personal Vehicle for Work
First, the DOL noted that there are three methods to reimburse an employee for use of his or her personal vehicle for work purposes: (1) using the IRS’s annual standard mileage rates in relation to all miles driven by the employee for work; (2) calculating the actual expenses incurred by an employee who drives a personal vehicle for work; and (3) reimbursing the employee based on a “reasonably approximate amount.” WHD Opinion Letter FLSA2020-12 at 1-2 (August 31, 2020). Employers that use the IRS rate benefit from the fact that the IRS rate is considered “reasonable per se” under 29 C.F.R. Section 778.217(c)(2) and, thus, can be excluded from the regular rate of pay when calculating overtime owed to the employee. Id. at 3. This is because an employer must show the expense was incurred for the convenience of the employer, and the amount reimbursed “must be ‘the same or less than the maximum reimbursement payment’ permitted by the IRS rate” to be considered per se reasonable and, thus, excluded from the regular rate calculation. Id. (quoting Section 778.217(c)(2)(i)). Although an employer is free to use its own method to reasonably approximate expenses, the DOL noted that “[t]o the extent that some or all of these methods may reasonably approximate actual business expenses incurred by employees under certain circumstances, they will comply with the Act. To the extent that these methods fail to reasonably approximate such expenses, they will not.” Id. at 5.
What Fixed Expenses Must Be Reimbursed
The DOL also articulated how to determine when a fixed expense should be reimbursed. “Whether reimbursements must include fixed expenses depends on whether the expense is incurred primarily for the employer’s benefit.” Id. at 6 (quoting 29 C.F.R. Section 531.32). “[Employers] need not reimburse ‘expenses normally incurred by the employee for his own benefit.’” Id. (quoting 29 C.F.R. Section 778.217(d)). Applying these regulations to personal vehicles, the DOL framed the question as whether the employee owns the car primarily for the employee’s own benefit or for the employer’s. Id. “Therefore, when the employee’s vehicle is not solely a tool of the trade, employers would be required to reimburse only the variable expenses attributable to the employee’s use of the vehicle for the employer.” Id. These variable expenses would not be the costs of a license or registration, but would be expenses that “vary with the amount the employee uses or distance the employee drives the car.” Id. The DOL applied this same analysis to other expenses such as tools and uniforms, providing useful guidance for a range of similar issues.