On March 29, 2019, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) under the Fair Labor Standards Act (FLSA).  The proposed rules will clarify for employers what types of compensation must be included when determining an employee’s “regular rate” in order to determine the overtime rate. This is a conversation I have with various employers weekly and will be welcome guidance.

Recall, overtime is time and one-half the “regular rate”. Currently, given the extremely outdated regulations and changes in payments to employees (i.e. more fringe benefits such as tuition reimbursement, etc.), employers are understandably confused whether certain payments for employee perks must be included into the employee’s regular rate calculation. For example, if an employee works 40 hours and makes $400 a week, the employee’s regular rate is $10/hr.  Easy enough.  However, if that employee is provided a $100 discretionary bonus that week because the company was doing well, the regular rate remains the same. Easy, if you don’t misidentify a non-discretionary bonus as a discretionary bonus. However, if the employee earns a $100 non-discretionary bonus (i.e. sales incentive plan or other bonus that the employee knows how to earn), the regular rate is $500/40 = $12.50/hr.  Thus, the overtime rate increases.

The proposed rule will clarify which payments, perks and other benefits must be included in the employee’s “regular rate”. As currently drafted, the following payments are proposed to be excluded from the definition of “regular rate”:

  • Costs of providing wellness programs, onsite specialist treatment, gym access and fitness classes, and employee discounts on retail goods and services.
  • Payments for foregoing holidays or paid leave (including sick pay, holiday, vacation, etc).  For example, if an employee is paid to work on a holiday and also receives holiday pay (like those not working) – the holiday pay may be excluded from overtime.
  • Payments for bona fide meal periods.  Unless there is an agreement to pay for such time as hours worked, paid meal periods would be excluded.
  • Reimbursed expenses (not just those “solely” for the employer’s benefit).
  • Reimbursed travel expenses that do not exceed the maximum travel reimbursement permitted under the Federal Travel Regulation System regulations and which meet other regulatory requirements (ensuring that it is “reasonable”).
  • Certain overtime premiums under FLSA Section 7(e)(5) and (6) even without a prior formal contract with employees to exclude such time.
  • Pay for time that wouldn’t qualify as “hours worked”, such as bona fide meal periods (unless agreement or established practice shows that the parties have treated the time as as hours worked).
  • Certain discretionary bonuses.
  • Certain tuition programs (such as reimbursement or repayment of educational debt) so long as not tied to hours worked and optional.
  • “Call-back”, “show-up” etc. pay that is not prearranged and that is not the pay for the actual hours worked.
  • Employee discounts on retail goods or services (as long as not tied to an employee’s hours worked or services provided).

In short, the more compensation an employee earns, the greater their “regular rate”. The greater the regular rate, the greater the overtime. Thus, clarity in this regard will assist employers (and make it easy to show employees) in properly excluding additional non-work payments from the employee’s regular rate.


The U.S. Department of Labor has issued yet another opinion letter sorting out when an employee need not be paid while volunteering.  DOL Opinion Letter FLSA2019-2 was one of three letters issued on March 12, 2019. In this case, an employer inquired whether an employee’s time spent in its optional volunteer program was compensable as “hours worked” under the Fair Labor Standards Act (FLSA). In short, this employer tracks employee’s hours volunteering and awards a bonus to certain participating employees. The volunteering is purely optional. While employees are paid to volunteer during working hours, or for work required to be performed on the employer’s premises, they are not paid to volunteer outside normal working hours.

The DOL thus clarified that compensating employees while participating in volunteer activities during normal working hours does not jeopardize their status as volunteers when they participate outside of normal working hours.  The DOL also clarified that an employer may use volunteer time as a factor in considering whether to pay the employee a bonus, and need not count that time as hours worked, “so long as: (1) volunteering is optional, (2) not volunteering will have no adverse effect on the employee’s working conditions or employment prospects, and (3) the employee is not guaranteed a bonus for volunteering.” That being said, employers should keep in mind that this opinion letter is fact specific. The debate with an employee will be the degree to which they believe that volunteering was not in fact “purely optional” as an employer states, but was expected, favored, implied, or coerced.

On March 14, 2019, the U.S. Department of Labor (DOL) issued Opinion Letter FMLA2019-1-A. While most opinion letters do not come a surprise to me, this one I cannot say the same…more like a deer-in-the-headlights type of moment (I knew some of you were wondering what in the heck a deer had to do with the DOL). Indeed, the DOL clarified its position that while an employer may require an employee to use PTO while on FMLA leave (this is not a surprise), neither the employer nor the employee may extend FMLA by using PTO (surprise). Come again?! Let’s break this down.

An employer has 5 days to provide an employee a written designation notice (Form WH-382) after the employer has enough information to determine whether leave (including PTO) is being taken for a FMLA-qualifying reason. We know this. Employee says, I am going to have a baby, employer provides the WH-382 form. But what about the employee that wants to use PTO for say, a medical procedure, but not FMLA – and frankly, HR is happy to not have to go through the FMLA process. Not okay, says the DOL.

Once an eligible employee communicates a need to take leave for a FMLA-qualifying reason, neither the employee nor the employer may decline FMLA protection for that leave.  See 29 C.F.R. 825.701(a).

Thus, the DOL opines that as soon as an employer determines that a leave (even “just PTO”) is FMLA-protected, it must be counted towards the employee’s FMLA leave entitlement, and the employee must be notified within 5 days. No matter how badly the employee wants to “just use PTO” the employee cannot make that determination. I suppose it is based on the same premise as the FMLA – that an employee cannot contract around his or her rights (i.e. agree to less than minimum wage or agree to no overtime).

An employer is also prohibited from designating more than 12 weeks of leave (or 26 weeks of military caregiver leave) as FMLA leave.

That right – an employer cannot actually allow an employee more than 12 (or 26) weeks of FMLA leave – “providing such additional leave outside of the FMLA cannot expand the employee’s 12-week (or 26-week) entitlement under the FMLA.” I guess the concept here is the law is, what the law is. FMLA provides for 12 (or 26) weeks of FMLA, and neither the employer nor the employee can change that law.

What should employers do? Keep your ears open for the reasons behind PTO requests (make sure that supervisors are communicating to HR actual reasons if they don’t go through HR directly). Finally, don’t forget that one FMLA qualifying leave may not be the same as another. So, you may have intermittent leave for one medical issue, but a set time for a second medical issue – those would be different leave entitlements (and designation notices), but accrue for the same 12/26 week period.

On March 14, 2019, the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2019-1. In this situation, an employer asked whether the FLSA applies when its employees (live-in superintendents and residential janitors) are exempt from state law overtime. The DOL confirmed what I’ve posted about several times:

When a federal, state, or local minimum wage or overtime law differs from the FLSA, the employer must comply with both laws and meet the standard of whichever law gives the employee the greatest protection.

Thus, just because an employer does not need to pay overtime under state law, it may need to under federal law, and vice versa. In Minnesota, this is where employers often get confused regarding whether they must pay overtime after 40 or 48 hours. The DOL Wage and Hour Division (WHD) also opined that not knowing which law applies, does not excuse an employer from a willful violation in its opinion (though acknowledging it is up to the courts on a case-by-case basis):

WHD does not believe that relying on a state law exemption from state law minimum wage and overtime requirements is a good faith defense to noncompliance with the FLSA, but a court retains discretion to make that determination of a case-by-case basis.  See 29 U.S.C. 260.

What does that mean exactly? Well, typically, there is a 2 year statute of limitations on wage claims. However, if an employer “willfully” violates the FLSA, the employee may go back 3 years for compensation. In short, be sure you are familiar with both Minnesota (state and local ordinances) and federal law (FLSA) with regards to overtime and minimum wage.

On April 3, 2019, the EEOC represented to the U.S. District Court for the District of Columbia that it would require Component 2 data (hours and pay by race, ethnicity and sex) for the EEO-1 report by September 30, 2019.  This is in addition to the May 31, 2019 deadline for the EEO-1 Component 1 data (the regular data that was not contested in litigation recently). The EEOC has not made any formal public announcement, and its website is devoid of any such notice. Accordingly, if you are required to file an EEO-1, you should continue to monitor this issue and importantly – prepare now for the data collection so you are not left scrambling at the last minute.

The day has arrived!  The US Department of Labor’s (DOL) Notice of Proposed Rulemaking, revising the Fair Labor Standards Act (FLSA), has been published in the Federal Register. Thus, the public comment period is open for 60 days (to May 21, 2019). For a short overview of the changes, you can read my previous post here. While I recognize most of you reading this will not make a public comment, that date is more important to know when the period will end, so that we have an idea of when it may be finalized into a final rule.

So, what should employers do with this information? Well, if you are about to do performance reviews/raises, and your salaried employees are making less than $35,308, you may want to consider an additional increase to at least that amount to starve off future issues concerning the exempt status. Similarly, you can budget for it now if need be. Once the proposed rule becomes a final rule, employers may raise salary levels or, if that is not possible, reorganize workloads, adjust work schedules, or spread work hours in order to avoid paying overtime (by having employees not work more than 40 hours per workweek). If, when you are reviewing your workforce, you determine an employee may be misclassified based on the duties test (and who is making less than $35,308), the new rule may be the perfect reason if you want to err on the cautious side and bring the employee back to a non-exempt status. If that is the case, don’t feel bad. The DOL estimates approximately $2M employees will likely fall under that umbrella. Thus, the DOL cautions that those employees will have a better position for a violation of the FLSA, as they will not meet either the duties test or the salary test. Lesson here – if you haven’t performed a self-audit in the past few years, it is time.

Employers required to file an EEO-1 (hopefully you know who you are…certain federal contractors/subcontractors), must do so between March 18, 2019 and May 31, 2019 via the EEO-1 website. Importantly, on March 4, 2019, the U.S. District Court for the District of Columbia held that the Office of Management and Budget’s stay of the revised EEO-1 (which sought workforce pay data) was improper. Thus, the DOL may require employers to report employee pay data. If you want more information on how this works, you can read my previous posts (type “EEO-1” in the search bar above). That being said, it is not entirely clear whether the DOL will actually do so this reporting year or delay it a year given the timing. More information is expected to come out in the near future, so I’ll keep you posted (pun intended).

On March 7, 2019, HR 2274 was introduced in the Minnesota House of Representatives that would very simply change the state overtime requirement from 48 hours to 40 – matching the federal FLSA. This bill would simply strike “48” from Minn. Stat. 177.25, and replace it with “40”.  It has been referred to the Labor Committee. Not much else to report at this time. However, given how many employers are under the purview of the federal FLSA, I do not foresee this change impacting the majority of employers in Minnesota.

Today the Minnesota Department of Labor and Industry (MNDOLI) issued employers yet another reminder not to engage in “wage theft” from employees, and encouraged subscribers to share the message. So, I’ll do my civic duty and share. In short, MNDOLI reminds employers of the following (with my comments below each point):

  • Pay your employees the applicable state minimum wage. Minnesota’s 2019 minimum-wage rates are $9.86 an hour for large employers and $8.04 an hour for small employers. For additional details about the state’s minimum-wage rates, visit www.dli.mn.gov/business/employment-practices/minimum-wage-minnesota. New rates take effect Jan. 1 each year. Employers operating in Minneapolis or St. Paul should understand the requirements of the minimum-wage ordinances in those cities.
    • There are some exceptions to the minimum wage rates such as training wages and youth wages (under 17).
    • Since Minnesota’s minimum wage rates are currently greater than the federal minimum wage rates, Minnesota’s rates apply to Minnesota employers (as they are more favorable to employees).
  • Pay your employees for all hours worked. Employees must be paid for employer-required training and for time needed to prepare to perform work, such as restocking supplies and performing safety checks. If you require employees to meet at a centralized location before driving to a worksite, pay the employee for the drive-time from the location to the worksite. Employers cannot require employees to remain at work and “punch in” only when it gets busy, “punching out” when business gets slow.
    • If you have a Collective Bargaining Agreement, be sure to review those bargained-for terms as well.
    • Tip: have employees drive directly to the jobsite in the morning.  If they have no ride, or need a ride, make it voluntary and be sure they do not do any work before the trip – they are a passenger only.
  • Pay your hourly employees for overtime. Federal law requires most hourly employees to receive overtime after working 40 hours in a workweek. Some employees are exempt from this requirement, but still need to be paid overtime after 48 hours in a workweek under Minnesota law.
    • I wrote about this in an earlier post – just because an employee may be exempt from overtime under federal law does not necessarily mean they are exempt under Minnesota law.
    • There is a bill pending (HF 2274) in the Minnesota legislature that would change overtime from 48 hours to 40 hours – stay tuned.
    • If an employee is not authorized to work overtime but does it anyway, they must be paid for those hours worked but can be disciplined for not following workplace rules.
    • Tip: remember private employers (almost everyone reading this) cannot use “comp” time from week to week – it must be paid out, unlike those employees in the public sector.
    • Employers do not need to pay higher rates in Minnesota (unlike some states) for working on Saturdays, Sundays, or holidays.
  • Pay your employees at least every 31 days, on a regularly scheduled payday that they are notified of in advance.
    • Tip: don’t forget if you terminate an employee they may request their final paycheck be paid within 24 hours. Since this is sometimes difficult, if possible, it is best to just have the final check ready to hand to the employee upon termination.
  • Do not misclassify employees as independent contractors. Such misclassification not only adversely impacts employees, it also creates a competitive disadvantage for employers that comply with state laws related to workers’ compensation, unemployment insurance and tax withholding.
    • Similarly, be careful not to misclassify an employee as exempt from overtime – and keep reviewing this blog for updates on the pending DOL rule to change the salary threshold.  If you missed my post, the update is here.
  • Do not take unlawful deductions from your employees’ paychecks. Deductions that generally cannot be made include:  property loss or damage; cash shortages; and tool or uniform expenses.
    • Tip: you can ask the employee to agree to pay it back after the fact – but it has to be in writing, and deductions cannot take the employee below minimum wage (it’s a bit more complicated than that with taxes, other deductions, etc.).  If the employee refuses, you can discipline the employee for whatever caused the loss.
  • Do not require your employees to pool or share tips.
    • Again, in Minnesota, employers cannot take a tip credit against minimum wage (like many states).
    • Employees may voluntarily agree to share tips, but employers should stay out of it.

And final tip – don’t forget to keep the records of wages, time cards, deductions, etc. for at least three years after their termination.

The day we’ve all been waiting for has arrived! Perhaps not quite that exciting, but the U.S. Department of Labor has finally issued its Notice of Proposed Rulemaking, its second attempt at updating the Fair Labor Standard’s Act’s (FLSA) so-called “white collar” exemptions for executive, administrative, professional, outside sales, and computer employees. As I’m sure you know (or you can read ad nauseum on my blog), in order to qualify to be exempt from the overtime regulations, an employee must meet both the salary basis test, salary level test, and the duties test.

Currently, the salary threshold is $455 per week ($23,660 annually). The proposed rule would increase that threshold to $679 per week ($35,308/year) using the same methodology as how the DOL set the 2004 salary level. This is significantly lower than the 2016 Final Rule (that was enjoined), which attempted to increase the salary threshold to $913/wk or $47,476/year. Similarly, and perhaps more significantly, the salary threshold for highly compensated employees (HCEs) will increase from the current $100,000, to $147,414 per year. This is not the same method as used in 2004, but rather was set using the method in the 2016 Final Rule.

What else is new? Well, the DOL will commit to review and update the salary threshold periodically, but importantly, where the 2016 DOL Final Rule went wrong, any new salary threshold will be updated via a notice-and-comment rulemaking – it will not be automatic. Also, similar, but slightly different than 2016, employers may use non-discretionary bonuses and incentive payments (such as commissions) that are paid at least annually to satisfy up to 10% of the salary threshold. However, if not enough is actually earned, the employer must make a catch-up payment the following year. Thus, an inside sales person making $34,000 in base salary plus $10,000 commission will meet the salary threshold.  There were no proposals to the job duties test. Overall, the changes are estimated to affect $1.3 million exempt employees.

What’s next? The public has 60 days to comment on the proposed regulation from the date it is published in the Federal Register (which has not happened yet). The rulemaking docket is RIN 1235-AA20, and will be able to be found at www.regulations.gov, or more specifically here. Once the comment period closes, we wait for any changes and the published final rule, which will provide the effective date.