On July 1, 2021, the U.S. Department of Labor (DOL) issued yet another press release regarding recovery (this time $1.5 million) of back wages for 242 home healthcare workers (this is not a MN employer, but this is a nationwide DOL effort). In this instance, according to the DOL, the employer paid straight-time wages for all hours an employee worked in a week, rather than straight time for all hours under 40 and overtime (time and one-half) for all hours over 40. By lowering the “regular rate” each week and then paying “overtime” based on the changing regular rate, the employees actually received the same hourly rate of pay each week no matter how many hours they worked, depriving them of overtime pay. As the DOL notes, this is a “scheme” which violates the Fair Labor Standards Act (FLSA). The employer was also fined a civil money penalty for the willful nature of the violations.

Here’s how the scheme works (don’t do this) so that the employee is paid the same amount for all hours worked – but it appears they receive “overtime”:

  1. Mary and Employer “agree” she will make $25/hr. for all hours worked.
  2. Mary works 40 hours week 1.  She is paid $25/hr. (regular rate).  40hrs x $25 = $1,000.
  3. Mary works 60 hours week 2.  She is paid $25/hr. (regular rate) and $25 (overtime).  60hrs x $25 = $1,500.
  4. On the payroll, Employer lowers Mary’s regular rate to show $21.44/hr. and notes an overtime rate of $32.16/hr.  Accordingly, she is paid (40hrs x $21.44) + (20hrs x $32.16) = $1,500.80.
  5. Mary should have been paid (40hrs x $25) + (20hrs x $37.50) = $1,750, a shortfall of $249.20.

This is one of many press releases the DOL has put out in the past year regarding violations of overtime rules by home healthcare agencies. Here’s another scheme the DOL has previously noted by home healthcare agencies (don’t do this either):

  1. Mary and Employer “agree” she will make $1,000 a week.
  2. Mary works 40 hours week 1.  She is paid $25/hr. (regular rate).  40hrs x $25 = $1,000.
  3. Mary works 60 hours week 2.  She is paid $14.29/hr. (regular rate) and $21.44 (overtime).  (40hrs x $14.29) + ($21.44 x 20) = $1,000.30.
  4. Mary should have been paid 40hrs x $25 + 20hrs x $37.50 = $1,750, a shortfall of $750.

Unfortunately, home healthcare agencies have unique issues insofar as they are only paid $X per hour worked by the State of Minnesota, and overtime is not typically reimbursed. Accordingly, if an employee works overtime (whether they want to or not), the employer may not actually be getting reimbursed by the state enough to cover the overtime amounts (and thus, loses money on the contract). Accordingly, it is not surprising that such employers desire creative solutions so that the employee is paid a higher hourly wage (to be competitive), and yet the employer does not lose money on the contract.

What can such employers do? You can prohibit the working of overtime (though, if overtime is worked, you must pay for it), or lower the employee’s hourly rate (and keep it at the agreed-upon rate) so that when overtime is worked, you are not losing money. Also, keep in mind that employers and employees cannot agree to be paid outside of what the law requires. Therefore, even if an employee agrees to be paid say, $30 for all hours worked, or agrees to a certain set amount each week (as in the examples above), that is not allowed – hourly (non-exempt) employees must be paid overtime at time and one half (we won’t get into the fluctuating workweek method here…).

Employers also need to remember Minnesota’s wage theft law – employees must be made aware of their wages prior to the wages being earned.  Changing wages each week after work is performed is inconsistent with this law as well. This invites a recordkeeping violation as well. When in doubt – have your pay system checked out by counsel to determine if there are any potential issues and if so, how to correct them.