DOL Opinion Letters Provide Practical Insight and Guidance – What Employers Need To Know

As we reported last month, the U.S. Department of Labor (“DOL” or “Department”) kicked off the new year by publishing six Opinion Letters, four of them addressing specific topics related to Fair Labor Standards Act (“FLSA” or “Act”) compliance.

These Opinion Letters provide practical guidance responsive to real-world questions from individuals or organizations.

FLSA2026-1

In its first Opinion Letter the Department addressed the inverse of a typical dispute over employee classification.  As part of an internal restructuring, a company that previously had classified a Licensed Clinical Social Worker (“LCSW”) as exempt from the FLSA’s overtime requirements reclassified the worker as non-exempt.  The LCSW asked the Department to weigh in on two questions: first, whether the LCSW’s role met the criteria for the learned professional exemption, and if so, whether the employer could nevertheless choose to classify them as non-exempt and pay them on an hourly basis.

The Department opined that the primary duties of the LCSW role likely satisfied the duties requirements for the learned professional exemption.  However, the worker would not meet the exemption’s compensation requirements because the employer had changed the worker’s pay to hourly. This guidance is not particularly remarkable, and is consistent with prior guidance interpreting the learned professional exemption.

But the Department took its analysis a step further to point out that, “even if all the criteria for an FLSA exemption are met, it is the employer—not the employee that claims the exemption.”  In other words, the FLSA only prohibits the misclassification of a non-exempt employee as exempt.  Nothing in the statute or regulations prevent an employer from choosing to classify an employee as non-exempt.

The Takeaway

Employers maintain the discretion to designate otherwise exempt workers as non-exempt—irrespective of any preference the employee may have with respect to exempt/non-exempt status.  Of course, treating such employees as non-exempt may complicate overtime calculations (particularly if they are still paid on a salary or other non-hourly basis), and would subject these employees to certain recordkeeping requirements not applicable to exempt staff.  Employers should consult with counsel before implementing this type of reclassification to ensure compliance.

FLSA2026-2

Next, the Department tackled a familiar issue: the proper calculation of the FLSA regular rate.  The Opinion Letter presented the following scenario:

• An employer implemented a bonus program for employees who satisfied specific punctuality, attendance, and safety criteria.
• Any employee who met the specified criteria automatically received the weekly performance bonus.

• The employer did not include those bonus payments into its calculation of the employee’s regular rate of pay for purposes of calculating their overtime rate.

The Opinion Letter first covered the basics, explaining that, subject to limited exceptions, “all remuneration for employment paid to, or on behalf of, the employee” must be included in the regular rate calculation.  The calculation itself is relatively straightforward: determine the total straight-time earnings for the week in question (subject to statutory exclusions) and divide that figure by the total hours worked in that week.  Non-discretionary bonuses—such as the weekly performance bonus at issue here—must be included in the total straight-time earnings for that calculation.

With this foundation, the Department then provided practical guidance on how to calculate overtime to include non-discretionary bonuses.  Such bonus payments should be allocated across all hours worked during the relevant period, including any overtime hours, which increases the rate of pay for each hour worked.  Accordingly, the overtime shortfall in these cases is based only on the overtime premium, or one-half of the regular rate. To determine the total overtime due in a workweek, the employer must multiply this half-time rate by the number of overtime hours worked.

The Takeaway

This Opinion Letter reinforces a well-established principle: if a bonus payment is triggered by specific conditions, promised in advance, and not subject to employer discretion, it is non-discretionary and must be included in the regular rate for overtime purposes.  Even small errors in the regular rate calculation can create large overtime shortfalls when applied across a large number of employees or long time periods.[1]  Employers should review their compensation protocols for non-exempt workers and ensure that all remuneration is properly being accounted for in their overtime calculations.

FLSA2026-3

In the third Opinion Letter, the Department addressed a trio of questions arising from a collective bargaining agreement proposal that would require employees to attend a 15-minute pre-shift roll call, but would exclude that time from being counted toward the calculation of overtime.  The stated purpose of this proposal was to increase the annual hours worked by an employee for purposes of satisfying the partial overtime exemptions for specific CBAs under 7(b)(1) and 7(b)(2) of the Act.[2]  Union officials posed the following questions to the Department: (1) whether this mandatory roll call time is properly classified as “hours worked”;  (2) whether the roll call period can be used to supplement pay periods that would otherwise fall below 80 hours; and (3) whether the roll call period could be excluded from the overtime calculation given that its sole purpose is to bring employees closer to 2,080 annual hours.

The Department quickly resolved the first two questions: the roll call time would constitute hours worked.  Although certain “preliminary” activities may be excluded from hours worked, the DOL emphasized that they must nevertheless be treated as compensated work hours if performance of these tasks is mandatory and made compensable by contract, custom, or practice.  Here, the CBA designated the pre-shift roll call as both mandatory and compensable, and, therefore, it constituted compensable work time that must be included in overtime calculations.

With respect to the third question addressing the CBA-related partial overtime exemptions under 7(b)(1) and 7(b)(2), the Department recognized the relatively small amount of work time implicated by the pre-shift roll call and concluded that incorporating this additional work time into employees’ schedules would not necessarily push them beyond the scope of the 7(b)(1) and 7(b)(2) exemptions.  The DOL cautioned, however, that this determination was tied to the unique work schedules for the employees at issue and assumed that the only additional work time was related to the 15-minute roll calls.  Further, if any employee’s work hours were to exceed the statutory limits of 7(b)(1) or 7(b)(2), the partial exemption would not apply and the employer would need to recalculate the employee’s earnings and pay all applicable overtime premiums due.

The Takeaway

The 7(b)(1) and 7(b)(2) partial exemptions to the FLSA are negotiated terms of employment explicitly built into a CBA.  Employers who rely on these partial exemptions must ensure proper compliance with the minimum and maximum thresholds, or else potentially risk losing the exemption entirely.  Employers with unionized workforces should carefully analyze whether organized populations could still meet the business needs of the company subject to these specific limitations, and consult with counsel on the potential implication of these provisions. 

FLSA2026-4

Finally, the Department addressed Section 7(i) of the Act, which exempts certain employees in “Retail or Service Establishments” from overtime requirements.  The exemption applies where: (1) an employee works in a retail or service establishment, as defined in the regulations; (2) earns a regular rate of at least 1.5 times the federal minimum wage; and (3) earns more than 50% of their compensation through commissions.

The Department first addressed which minimum wage rate factors into Section 7(i)’s minimum pay provision—federal or state.  The DOL stated unequivocally that any higher state minimum wage that may exist is irrelevant to Section 7(i).  To satisfy the 7(i) minimum pay provision, an employee need only receive a regular rate above $10.88 per hour, which is 1.5 times the current federal minimum wage of $7.25.

Next, the Department addressed how employee tips could impact the above analysis.  The DOL first noted that ‘tips’ in a general sense are not compensation for employment when they are presented by a customer as a gift or gratuity.  As such, tips should not factor into an employee’s compensation to determine whether the employee satisfies the minimum pay provision or commission requirements of the exemption.  This comes with a caveat: where an employer relies on tips to satisfy certain federal, state, or local wage obligations (e.g. a tip credit), the employer may account for the portion relied upon to satisfy these wage obligations as ‘non-commission compensation’ when evaluating whether the employee earns sufficient commissions to qualify for the exemption.

The Takeaway

Section 7(i) provides for a narrow exemption for certain qualifying employees.  Employers relying on the exemption should closely track employee compensation to ensure that at least 50% is generated from qualifying commissions each week. 

Looking Forward

Although the Opinion Letters respond to questions presented by employers, employees, and unions regarding issues and facts specific to each of them, they nevertheless have broader application and provide helpful insight into the Department’s current interpretation of the FLSA (and potentially its enforcement priorities).  

In addition to its Opinion Letter program, the Department has created several resources for employers to help them achieve FLSA compliance.  As one example, the DOL has developed a formal program for employers to self-report and cooperate with the Department to remediate non-compliance, and potentially evade some of the more punitive penalties that often attach to FLSA claims.  Employers should, however, proceed with caution: voluntarily inviting the Department to perform a compliance review poses its own significant risks and limitations, including the possibility of a far greater audit than initially contemplated.  The decision to affirmatively reach out to the Department for an Opinion Letter or otherwise deserves serious consideration and an evaluation of the unique circumstances relevant to the employer.  The lawyers in EBG’s Wage and Hour practice group are poised to help.

Endnotes

[1]      State-specific laws must also be evaluated as part of this analysis.  California, for example, may treat certain lump sum bonus payments differently for purposes of calculating the regular rate, which could lead to different overtime rates under state and federal law.

[2]      These exemptions allow certain employees to be partially exempt from traditional overtime requirements, but require implementation of specific payment and work hour thresholds guaranteed by a CBA.  Among other things, under 7(b)(1), the CBA must prohibit employees from working more than 1,040 hours in any consecutive 26-week period and must guarantee payment of overtime for any hours worked in excess of 12 in a single workday or 56 in a single workweek.  The 7(b)(2) exemption sets forth different requirements, including, a guaranteed number of work hours (up to 2,080 over a 52-week period), limitations on total hours worked (2,240 during the same 52-week period), and specifies circumstances where overtime compensation must still be paid to qualifying employees.