The U.S. Department of Labor (DOL) recently published opinion letters addressing: (1) whether salaried exempt employees could lose their overtime exemption by performing some nonexempt work at an hourly rate; (2) how to calculate overtime when using a quarterly bonus pool; and (3) whether time spent voluntarily traveling from a work station to leave the employer’s property to eat can still be unpaid meal time. The letters interpreted the federal Fair Labor Standards Act (FLSA).
Salaried exempt employees who perform some nonexempt work for an hourly wage (FLSA2026-5): The DOL determined that when a white collar salaried exempt employee’s primary duties meet one of the exempt definitions, the simple act of also performing nonexempt work doesn’t destroy the exemption. Also, paying the exempt employee additional hourly compensation for the nonexempt work is permissible, provided the employee is otherwise receiving a salary that satisfies the salary basis test. For an overview of the various exemptions and how to comply with the salary basis test, see our Legal Guides, When Is an Employee Exempt Under Federal Law?, Salary Basis Test for Overtime Exemptions, and State Laws on the White Collar Exemptions from Overtime.
Calculating overtime for a bonus pool (FLSA2026-6): The DOL endorsed an employer’s approach in slicing up a quarterly bonus pool based on the amount of each employee’s gross earnings compared to the total gross earnings of all eligible employees. The employer began by determining the size of the pool each quarter according to sales revenue (for example, $100,000). Next, the employer added up all eligible employees’ gross earnings (including straight-time and overtime) during the quarter and calculated what percentage of that amount was earned by each eligible employee. Then employees received individual bonuses according to those percentages. For example, if one employee’s gross earnings were 5 percent of the total gross earnings of all eligible employees, that individual’s bonus would be 5 percent of the bonus pool (in this example, 5 percent of $100,000, which would be $5,000). Because the bonus was calculated as a percentage of earnings that already included overtime compensation, the calculation complied with the law. The DOL reminded employers that the FLSA requires nonexempt employees to be paid overtime at one-and-one-half times their “regular rate,” not just their base rate, and the regular rate includes “all remuneration,” with limited exceptions. This means you need to include extra payments such as nondiscretionary bonuses (including production or attendance bonuses) in your overtime calculations. This employer’s pooled bonus is one of the permissible approaches we cover in our Legal Guide, Effect of Bonus Payment Plans on Overtime Pay for Hourly Employees.
Unpaid meal periods for employees who want to leave the premises (FLSA2026-7): For employees who voluntarily choose to leave the worksite during their meal periods, the DOL determined that time spent traveling across the employer’s property and in security lines could be unpaid meal time. The DOL reached its conclusion because the employees mentioned in the letter had the option to remain onsite to eat, were fully relieved of duty during the meal period, had an adequate opportunity to consume a meal, and could use the time for any personal purpose.
Tips: Wage and hour issues continue to be some of the most complex and legally risky areas for employers, especially on the west coast. These opinion letters provide some clarity from the DOL’s perspective on federal FLSA enforcement, but they’re not binding on federal courts. Also, your state could set higher standards or make some of these practices risky. Vigilant members, if you’re applying these approaches and you have questions, contact your Vigilant Law Group employment attorney.
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