Pay Me Now, or Pay Me Later? Wages Paid for Anticipated Overtime are Excludable from Employees’ Regular Rate

By Caroline Kane and Tracey Truesdale - Franczek P.C.

January 5, 2021

The Department of Labor (“DOL”) released an opinion letter addressing whether certain overtime payments based on an expected number of hours may be credited towards the amount of overtime pay owed under the Fair Labor Standards Act (“FLSA”) and whether such overtime payments are excludable from the regular rate. The answer to both questions is yes.

The inquiry came from a business that provides in-home care services on a live-in basis or for shifts of 24 hours or more. The employer pays an hourly rate plus overtime based on anticipated overtime hours. The caregivers typically work five days a week for 120 or more hours. Given the nature of the caregivers’ work, the employer found it difficult to track which hours the caregivers were actually working. The employer therefore treats the employees as performing compensable work for the entire extended shift, minus 8 hours allotted for sleeping and meal breaks. If a caregiver has any work-related interruptions to meal or sleep periods, the caregiver is to track those hours and they are counted as compensable time. If a caregiver works more than anticipated, then the employer supplements the prepaid compensation at a rate of 1.5 times the caregiver’s hourly rate for each unanticipated hour of work over 40 hours.

The FLSA contains a statutory exclusion which permits an employer to exclude extra compensation provided at a premium rate. The FLSA further permits an employer to credit any payments excludable under the FLSA towards overtime pay owed under the FLSA. In reading these provisions, the DOL determined that the employer’s practice of paying overtime based on expected number of hours worked and providing supplemental pay for unexpected additional hours aligned with the FLSA and supporting regulations. Further, the extra compensation may be excludable from the regular rate as an overtime premium and credited towards the employer’s overtime pay obligations in any workweek in which overtime is owed.

Wage/hour compliance is ever-changing, and this new opinion letter is welcome news for employers that affirmatively factor anticipated overtime into employee compensation. As indicated by the opinion letter, it remains an employee’s responsibility to accurately report all hours worked, including hours worked in excess of regularly scheduled time, to ensure that they are appropriately paid. Employers with wage/hour questions should contact the Franczek attorney with whom they regularly work.