On November 30, 2020, the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2020-17, concerning how to calculate the regular rate of an employee paid on a piece-rate basis. In this situation, the employees are warehouse unloaders, and are paid based on the number and types of trucks they unload.  Some of them have waiting time during their shift, and these hours are tracked as “hours worked” for minimum wage/overtime purposes. However, they are not paid a separate hourly rate for this waiting time. The question is whether those hours count towards “hours worked” for determining overtime.

The law has long been clear that the “regular rate” is a mathematical formula of dividing total hours worked by the total compensation received.  29 U.S.C. 207(e). Further, 29 C.F.R. 117.318(a) requires that nonproductive working hours be paid for and counted towards hours worked. However, the DOL notes that 29 CFR 117.318(c) clarifies that, when no hourly rate is paid at all (as with a piece-rate) and the employer and employee have a “clear and mutual understanding” that the pay received is for all hours (worked or not productive), the regular rate is determined by dividing all piece-rate earnings by the total hours worked in a workweek (both productive and nonproductive). Because more hours are counted towards “hours worked”, the regular rate (and thus, overtime rate) will be less.

Thus, the DOL concluded that the regular rate for the employees paid a piece rate is properly calculated by adding all piece-rate earnings plus any non-excludable supplemental pay, and dividing that by the total number of hours worked in the workweek, both productive and waiting time (since there was never an understanding that they would be paid for waiting time). 29 C.F.R. 778.111(a). I know this is still muddy, and the DOL notes that several courts disagree with how to interpret the law, but at least employers now know where the DOL stands with respect to enforcement actions of the same.