True to its promise last year, the U.S. Department of Labor’s Wage and Hour Division (the “WHD”) continues to issue a steady stream of opinion letters designed to offer practical guidance to employers on specific wage and hour issues solicited by employers. This past week, the WHD issued two new opinion letters concerning the Fair Labor and Standards Act (“FLSA”), where one addresses an employer’s hourly pay methodology vis-à-vis the FLSA’s minimum wage requirement, and the other the ministerial exception to the FLSA. While not universally applicable, employers should consider the general principles set forth in these opinion letters, and then further research the underlying relevant regulations and the DOL’s interpretive guidance to more fully understand the basic requirements to ensure legal compliance.

Varying Average Hourly Rate:

In Opinion Letter FLSA2018-28, the WHD examined a compensation plan in which a home-health aide employer paid employee aides on an hourly basis for each of their client appointments. While the employer did not specifically pay aides for their travel time between client locations, the hourly rate they received for the client appointments was sufficiently large enough when averaged among all hours worked, including travel time, to satisfy the minimum wage requirements of the FLSA. Specifically, the employer multiplied each employee’s time with clients by his or her hourly pay rate (typically $10 per hour) and then divided the product by the employee’s total hours worked (which includes both the client time and the travel time). Employees who work over 40 hours (including travel time) in any given workweek are paid time and one-half for all time over 40 hours based on a regular rate of $10.00.

Based on these facts, the WHD concluded that this payment scheme complies with the FLSA’s minimum wage requirements, reaffirming the principle that an employee’s average hourly rate can vary from workweek to workweek as long as it exceeds the FLSA’s minimum wage requirements for all hours worked. On the issue of overtime pay, however, the WHD cautioned that the employer’s compensation plan may not comply with the FLSA because the employer assumed a regular rate of $10 when, in fact, certain of its employees have actual regular rates of pay greater than $10. In other words, the regular rate cannot be arbitrarily selected; it must be based on an actual “mathematical computation.”

Ministerial Exception:

In Opinion Letter FLSA2018-29, the WHD advised that members of a Christian cooperative who share all personal property and funds and work for the organization, either in the schools, kitchens, or laundries or for two onsite non-profits that generate income for the organization, are not “employees” under the FLSA. As a preliminary matter, the WHD emphasized that the members of the cooperative do not expect to receive compensation for their services, which is the hallmark of an employment relationship.   The WHD further reasoned that the organization’s members are similar to nuns, priests, and other members of a religious order who work for church-affiliated entities, who typically fall within the FLSA’s ministerial exception. The WHD reasoned that like priests and nuns, the members of the religious cooperative share resources, gather for communal meals and worship, and provide for their own education, healthcare, and other necessities. In light of these similarities and the absence of any expectation of compensation, the WHD determined that the members of the cooperative were not employees for purposes of the FLSA.

The Opinion Letter further noted that the fact that some members work for non-profit, income-generating ventures did not alter the WHD’s conclusion. Relying on U.S. Supreme Court precedent exempting religious activities from the FLSA’s reach, the WHD explained that the members consider the work indivisible from prayer and reiterated that individuals can work for entities covered by the FLSA without being deemed employees under the FLSA.

Our colleagues Kara Maciel and Jordan Schwartz, both of Epstein Becker Green, recently cowrote an article for PLC titled “Tipped Employees Under the FLSA.”

Following is an excerpt:

Wage and hour lawsuits certainly are not new phenomena, but in recent years, service industry employees have increasingly made claims regarding tips and service charges. In particular, employers in states such as Massachusetts, New York and California have seen a surge in class actions involving compulsory tip pools and distributions of service charges to employees. Commonly targeted employers include large restaurant and coffee chains, as well as upscale eateries, many of which feature celebrity chefs.

The US Department of Labor (DOL) Wage and Hour Division (WHD) under the Obama Administration has taken an aggressive stance against wage and hour violations, leading to strict rules regarding proper tip pooling and service charge practices. As a result, many businesses with tipped employees, most notably in the food service and hospitality industry, face significant legal exposure arising from improper practices relating to the retention and distribution of tips and service charges.

To help employers comply with this complex and developing area of the law, this Note discusses and explains:

  • Federal law on tips and service charges and the interaction with state laws.
  • Who are considered tipped employees.
  • Disbursement of tips and service charges.
  • Tip pooling requirements.
  • States experiencing a high volume of class action litigation on this topic.
  • Best practices for compliance.

Download the full article, here, in PDF format.