Overtime Lawsuit: Emerging Questions and Options for Consideration
November 10, 2015 02:26 PM
As the National Association for Home Care and Hospice (NAHC) lawsuit challenging the U.S. Department of Labor’s rules affecting overtime compensation to personal care aides and live-in caregivers moves on to the U.S. Supreme Court, home care companies are taking steps to adjust their business practices to comply with the new rules. As NAHC has earlier indicated, with the Application for a Stay of the Court of Appeals ruling rejected by Chief Justice Roberts, the new rules came into effect on October 13, 2015. The rules will be in effect throughout the Supreme Court appeal.
Home care companies have taken a wide variety of actions to address the new requirements that create overtime compensation obligations. Some companies have limited the work hours of staff to avoid or minimize any overtime hours. Others have raised charges to cover the new cost. Some have implemented new compensation systems that accommodate the overtime obligation while providing some controls on the total cost of overtime.
One such model is a flat salary that is paid without regard to the number of hours worked. Overtime remains an obligation under such a model. However, the model contains and controls to a degree the total compensation paid. If done properly, the model complies with the federal Fair Labor Standards Act under 29 CFR 778.114, a rule that sets the standards for compliant compensation using a fixed salary for fluctuating workweek hours.
Fixed salary to nonexempt employees with fluctuating hours works like this:
The employee is guaranteed a fixed salary amount regardless of how many hours are worked in a workweek
The salary amount is equal to or greater than the applicable minimum wage rate for the total hours worked in any workweek
An overtime premium is added to the salary based on the number of hours worked above 40 in any particular workweek
The overtime premium is calculated by taking the fixed salary amount, dividing it by the number of hours worked, and multiplying the product by 0.5 for each hour over 40.
The employee must clearly understand that the fixed salary is paid without regard to the number of hours worked in a week
The rule provides an illustration of the model:
The fixed salary is $600 weekly. During the course of 4 weeks an employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. [$600 divided by the number of hours worked]. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600 [no overtime hours worked]; for the second week $600 [no overtime hours, same fixed salary regardless of number of hours worked, including less than 40]; for the third week $660 ($600 plus 10 hours at $6.00 [overtime premium] or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25 [overtime premium], or 40 hours at $12.50 plus 8 hours at $18.75).
With this model, the average hourly compensation will fluctuate each workweek as the number of hours worked varies. A key is that the hourly compensation must never fall below minimum wage in any given workweek. If in the example above, the employee worked 90 hours in a week, the hourly average ($6.67) would fall below minimum wage and the model would not comply with the FLSA.
The cost benefit of the model is that as work hours go up, the overtime premium on an hourly basis goes down. In the above example, the per hour overtime cost at 50 hours is $6 while it is $6.25 at 48 hours.
This model will not fit for all companies or all employees. However, it may be a model to consider for employees who normally work 40 or more hours in a week.
This article is not intended to convey legal advice. NAHC strongly recommends that home care companies obtain competent legal advice to determine whether the company’s compensation practices comply with federal and state law.