The Labor Department clarified its legal position on three payroll issues July 1 in the latest batch of opinion letters aimed to address case-specific questions from outside parties.
The topics addressed are calculating overtime pay for non-discretionary bonuses paid on a quarterly and annual basis; an exemption for paralegals as highly compensated employees; and rounding practices for calculating employees’ hours worked.
An opinion letter is an explanation of how a particular law applies in specific circumstances presented by the person or entity requesting the letter. Anyone can request an opinion letter, although they generally are used by employers and their attorneys. The letters are coveted as they represent the government’s official interpretation on whether a policy is in compliance with federal labor law. A letter also can be offered as a legal defense in some cases.
The three opinion letters were signed by the DOL’s Wage and Hour Division head Cheryl Stanton, who was sworn in as the chief administrator on April 29. A Labor Department judge recently scrutinized Stanton’s ability to delegate after Bloomberg Law reported that she invalidated any previously distributed authority to lower-ranking officials in the agency.
The department said in one letter that certain paralegals are exempted from overtime pay requirements under federal law.
The Fair Labor Standards Act generally requires employers to pay workers time-and-a-half wages for all hours beyond 40 per week. It includes a number of exemptions, however, including for “highly compensated employees.”
The department in the opinion letter said certain paralegals employed by an unidentified trade association are covered by the exemption. Those employees, who perform legal tasks but are not typically licensed attorneys, make more than $100,000 per year.
They also satisfied the exemption’s requirements for performing “non-manual” tasks and “customarily and regularly perform at least one exempt duty of an administrative employee,” the department said. That includes maintaining corporate and official records, assisting the finance department with bank account matters, and budgeting, among other responsibilities.
As a result, they are not entitled to overtime pay for any work beyond 40 hours each week, Stanton said in one of the three opinion letters.
The cutoff to be a “highly compensated employee” might soon change.
The Labor Department recently proposed raising the salary threshold from $100,000 to $147,000 in a pending rule. That could mean a pay raise for some paralegals whose firms want to keep them exempt from overtime requirements. Management attorneys have been advising companies to prepare for the new requirements by reviewing pay practices and deciding whether to raise salaries for workers near the threshold, cap hours, or plan to pay overtime.
The most recent U.S. Census Bureau data shows an average household income of $61,400.
Software that rounds time entered by employees covered by the Service Contract Act is neutral and compensates workers fully for the time they work, Stanton said in a separate opinion letter.
The employer, a government contractor subject to the SCA, uses a tool that “rounds” the amount of time an employee worked to six decimal points, and then rounds that amount of time worked to two decimal points to calculate pay. That is an acceptable practice, according to Stanton.
“It has been our policy to accept rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour as long as the rounding averages out so that the employees are compensated for all the time they actually work,” she said.
The WHD also tackled a technical question related to calculating overtime pay as part of annual and quarterly bonuses. She said overtime pay should be calculated after paying out the bonus, by going back to the regular rate and calculating accordingly.
“The annual bonus you describe is not tied to straight-time or overtime hours actually worked, but instead is one percent of the journey straight-time hourly rate for 2,080 hours,” according to the letter. The annual bonus shouldn’t be included in regular rate calculations until the end of the respective bonus period, it stated.