Yesterday, the U.S. Department of Labor released additional guidance for the Families First Coronavirus Response Act (“FFCRA”), the emergency COVID-19 legislation. The DOL also issued three wage and hour opinion letters concerning certain exclusions employers may make when calculating an employee’s regular rate of pay.
New COVID-19 Guidance
The Families First Coronavirus Response Act requires employers with less than 500 employees to provide workers short- and long-term paid leave for qualifying reasons relating to the COVID-19 pandemic. Earlier this week, we reported the DOL had issued its first round of guidance, consisting of Employer and Employee fact sheets and a Q and A document, as well as required notices for federal and other employees. You can read our blog article on these items here.
Regarding enforcement of the FFCRA, the DOL issued a Field Assistance Bulletin essentially stating that the agency will not bring enforcement actions against employers for FFCRA violations occurring through April 17, 2020, if the employer has made a reasonable, good faith effort to comply with the Act. “Reasonable” and “in good faith” mean the employer’s violation was not intentional, and the employer takes immediate steps to make affected employees whole. Employers must also send the DOL a written commitment to comply with the Act in the future.
Wage and Hour Opinion Letters on the Regular Rate of Pay
The DOL issued three new opinion letters regarding correct calculation of the regular rate of pay. The regular rate of pay is the rate employers are required to use to calculate overtime pay of non-exempt employees. By statutory definition, the “regular rate of pay” includes “all remuneration for employment” and takes into account forms of pay beyond hourly pay, such as commissions, piece rates, shift differentials and non-discretionary bonuses. The law excludes only eight narrowly defined categories of compensation from the regular rate of pay calculation. As basic math dictates, inclusion of more kinds of compensation in the regular rate calculation will result in a higher regular rate of pay.
A correct understanding of how to calculate regular rate of pay is critical for employers in all circumstances. Regular rate of pay calculation takes on heightened importance during the COVID-19 pandemic, since the FFCRA requires that short- and long-term paid leaves under the new law must be paid based on an employee’s “regular rate of pay.”
The first two letters concern “referral” and “longevity” bonuses, which may or may not be included in the regular rate of pay, depending on the circumstances. As to “referral” bonuses, the DOL analyzed a policy of an unnamed employer that provides a two-part referral bonus to employees who refer a person the company hires. The first part is paid at the time of hire, and the second part is paid if the referred employee completes a year of service.
Reiterating prior guidance, on which topic we previously reported, the DOL’s determination is that a referral bonus of the kind described in the letter (i.e., a bonus paid at the time of hire) may be excluded from the regular rate, as long as the recruiting activity is both voluntary and limited to non-work hours, people in the employee’s social circle, and nominal amounts of time. The second payment must be included in the regular rate, however, because as structured, it operates as a non-discretionary “longevity” bonus (in this case, the referred employee’s longevity), and therefore must be included in the regular rate.
The DOL also advised how “longevity” bonuses may, in some cases, be excluded from the regular rate of pay. The DOL reviewed the situation of an employer who had a bonus program whereby it paid employees a $2 bonus each pay period for every month of service. The employer was considering changing payment of the bonus from every two weeks to a lump sum bonus at the end of the year.
The DOL explained that as the bonus was described, it did not matter whether it was paid periodically or in a lump sum, because the bonus was non-discretionary in that its terms expressed that an employee “shall be paid” the bonus if employed a certain amount of time. The DOL went on to say that if the policy was written differently, making clear that the bonus “may” be paid up to a certain amount, and was not tied to performance or hours worked, the bonus would become discretionary and could therefore properly be excluded from the regular rate of pay calculation.
In the final opinion letter, the DOL opined that employers may exclude the cost to the employer of providing workers with group-term life insurance coverage beyond $50,000 worth of coverage, less any amount the worker pays to buy the insurance. While the IRS requires such contributions to be included in an employee’s gross taxable income, the DOL opined they do not need to be included in the regular rate of pay if the payments meet requirements under the FLSA and related regulations.
The full letters may be found here:
- FLSA2020-3:Addressing excludability of longevity payments;
- FLSA2020-4:Addressing excludability of referral bonuses; and
- FLSA2020-5:Addressing excludability of an employer’s contributions to a group term-life insurance policy.
With respect to DOL Field Assistance Bulletins and Opinion Letters, employers should remember that such documents, although helpful and sometimes persuasive, are not binding upon courts. Thus, an employer intending to rely on such guidance should also consult with qualified legal professions before adopting a position or course of action discussed in a Bulletin or Opinion Letter.
We will be updating our blog as more information becomes available, and SHLC attorneys are available to answer any questions you may have about the new law and latest guidance. You can also find information for other COVID-19 employment issues at the SHLC Coronavirus Pandemic Employer Resources page, at https://suttonhague.com/coronavirus/. We also have downloadable webinars on this and related topics at our Calnevalaw.com website.
As a final note, the regular rate of pay can be a confusing issue for many employers, and a source of significant liability. We recommend that companies consult with their employment law counsel, especially when they are considering unique or uncommon payment schemes like the ones described in the latest opinion letters.