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Legal Updates

DOL Gives Employers Greater Flexibility After Clarifying Rules On Uniforms, Pay Periods, And The Calculation Of Wages For Overtime Purposes

On July 29, 2008, the Wage and Hour Division of the United States Department of Labor (the “DOL”) clarified its rules regarding uniforms, an employer’s right to adjust its payroll period for administrative convenience, and the calculation of wages for overtime purposes when such adjustments are made.  The DOL made these clarifications in two opinion letters that give employers added flexibility with respect to wage deductions and adjusting employees’ rates of pay.

General Street Clothing Is Not A Uniform

The first opinion letter responded to an inquiry from a restaurant operator that required employees to wear dark shoes with closed toes and non-slip soles.  The employer had a program that allowed employees to purchase shoes from a manufacturer offering sixty different non-slip shoes in various styles and dark colors.  Participating employees had two payment options: (1) pay the manufacturer directly; or (2) buy the shoes through the employer by deducting the cost from the employee’s paycheck.  In some cases, the payroll deduction reduced the employee’s cash wages below the minimum wage.  The restaurant operator wanted to know if this arrangement complied with the federal wage-and-hour law known as the Fair Labor Standards Act (“FLSA”).

The lawfulness of this arrangement turned on whether the shoes were “uniforms.”  If so, then the restaurant operator would be subject to liability with respect to the shoe-purchase program’s second option because, under the FLSA, the cost to employees of uniforms may not result in wages falling below the minimum wage.  The DOL acknowledged that it has no “hard-and-fast” rules for determining when an article of clothing is a uniform.  The DOL’s field operations handbook, however, suggests that a “general type of basic street clothing” is not a uniform, while a “specific type and style of clothing to be worn at work, e.g., where a restaurant or hotel requires a tuxedo or a skirt and blouse or jacket of a specific or distinctive style, color, or quality,” is a uniform.

Applying these guidelines, the DOL determined that the required shoes were only a “general type of ordinary basic street clothing” and, as such, were not a uniform.  In reaching this conclusion, the DOL noted that the restaurant operator did not set any conditions on the quality, brand, style, model, or type of shoes that were required.  The only requirements were that the shoes be dark-colored with open toes and non-slip soles.  If employees already owned shoes satisfying these criteria, they were free to use them.  Otherwise, there were no restrictions on where employees could buy their shoes.

Because the shoes were not a uniform, the shoe-purchase program’s second option did not violate the FLSA, even though the cash wages of certain employees fell below the minimum wage after the cost of the shoes was deducted from their paychecks.  In this respect, noted the DOL, wages can be paid in cash or by furnishing the reasonable cost of board, lodging, or “other facilities.”  The restaurant operator’s advancement and subsequent recoupment of funds under the second option, concluded the DOL, is such an “other facility.”  Accordingly, the sum of the cash wages and the cost of the shoes satisfied the minimum wage.

Significantly, the DOL added:  “It does not matter if the employee in question is paid solely an hourly wage or as a ‘tipped’ employee.  The reasonable cost of facilities provided by the employer may be credited towards wages paid to a tipped employee.”

Employers May Adjust Pay Periods For Administrative Convenience, Even If This Lowers The Wage Used To Calculate Overtime Pay

The second opinion letter responded to an inquiry from a school district regarding its ability to adjust pay periods for administrative convenience.  Pursuant to a negotiated agreement regarding exempt teachers, the school district had twenty-six pay periods per fiscal year.  Thus, each pay period typically covered two workweeks.  For administrative convenience, the school district also paid non-exempt employees on this schedule.  Specifically, the school district calculated salaries for non-exempt employees by multiplying their hourly rate by 40 and then multiplying the result by 52.  These salaries were paid in equal installments in each of the twenty-six pay periods, along with any overtime earned.

About once every four years, the school district adjusted one of the pay periods to cover three weeks instead of two.  The adjustment was needed to meet the school district’s obligation to pay exempt teachers on a twenty-six-pay-period cycle.  Without the adjustment, a calendar quirk would cause there to be twenty-seven pay periods per fiscal year from time to time.  Non-exempt employees expressed concern that they were paid “less” during the occasional three-week pay periods.  Accordingly, the school district asked the DOL if these periodic adjustments complied with the minimum wage and overtime provisions of the FLSA.

The DOL determined that this arrangement did in fact comply with the FLSA, even though employees received less overtime during the occasional three-week pay periods.  The DOL used the example of a non-exempt employee paid $13 per hour, which the opinion letter implied was the lowest wage among affected employees (the “Employee”).

As the DOL explained, the Employee was paid an annual salary of $27,040 ($13 per hour x 40 hours per week x 52 weeks per year) in bi-weekly installments of $1,040 ($27,040 ÷ 26 pay periods).  As the wage used to calculate overtime pay must be reduced to its “workweek equivalent,” this wage was $13 per hour during the typical bi-weekly pay period ($1,040 ÷ 2 weeks ÷ 40 hours), but fell to $8.67 per hour during the occasional three-week pay period ($1,040 ÷ 3 weeks ÷ 40 hours).  Thus, with respect to overtime pay, the concerned employees were correct in asserting that they were paid “less” during the adjusted pay periods.

Significantly, the DOL concluded that the reduction in overtime resulting from the adjustment did not violate the FLSA.  In the DOL’s view, the school district satisfied the FLSA’s minimum-wage requirement during the most recent adjusted pay period because $8.67 exceeds the federal minimum wage.  Additionally, because the school district paid time-and-a-half for all overtime hours worked, it also satisfied the FLSA’s overtime requirement.  In this regard, the DOL implied that the reduction in the wage used to calculate overtime was not material because the reduced wage itself was lawful.  The DOL acknowledged that the employees had received advance notice of the pay-period adjustments, although it is unclear whether the absence of such notice would have affected the DOL’s analysis and outcome.

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Please note that state wage-and-hour laws can be more restrictive than the FLSA and, as such, might not give employers the same leeway as the DOL with respect to the issues addressed in the opinion letters.  We would be happy to address any questions you may have about the opinion letters in particular or wage-and-hour compliance in general.