The Holidays Are a Good Time to Review Regular Rate of Pay Calculations

This blog post was authored by Shardé C. Thomas

With employees requesting time off for upcoming holidays and flu season beginning, employers should review holiday pay and sick leave buyback provisions to ensure compliance with the FLSA regular rate of pay requirements. The FLSA requires that an employee who works overtime must be compensated for those overtime hours at a rate of at least one and one-half times the employee’s regular rate of pay. The regular rate of pay is not necessarily (and often not) their hourly pay or base pay. Employers must consider the various other types of compensation that the employees receive. Regular rate of pay includes “all remuneration for employment paid to, or on behalf of, the employee,” with the exception of certain payments that are specifically excluded under FLSA. Holiday pay and sick leave buy backs or cash-in present two of the more challenging types of pay potentially subject to being added to the regular rate of pay in calculating an employee’s overtime pay.

There are essentially three types of holiday pay: pay for taking the day off; pay for working on a holiday; and holiday-in-lieu pay. Pay received for taking the day off is not included in the regular rate of pay. Employees who work on a holiday and receive time and one half for working on the holiday (which is not required by the FLSA, but virtually every public employer pays time and a half for working on a holiday) are not entitled to have that additional time and one half included in the regular rate of pay.

Holiday-in-lieu can be paid out in the form of leave or pay. If it is paid as leave, then it is not included in the regular rate of pay because it is not pay. However, holiday-in-lieu pay is included in the regular rate if it is a payment. If the value of holidays received is spread across the entire year, with a percentage paid out each paycheck, then that regularly received payment must be included as part of the regular rate during each work week or work period (if the employee is a police officer or firefighter covered by the section 7(k) partial overtime exemption). (Hart v. City of Alameda (N.D. Cal. 2009) 2009 WL 1705612; U.S. Dep’t Labor, Wage & Hour Div. Opinion Letter, 1999 WL 1788163 (Sept. 30, 1999).) If the holiday in lieu pay is paid just during the workweeks or work periods during which the holiday occurs, then it is only included in the regular rate of pay during those particular workweeks or work periods.

The predominate view regarding awards for employees who do not use their sick leave, such as sick leave buybacks, is that such payments must also be included in the regular rate. (Chavez v. City of Albuquerque;Acton v. City of Columbia, Mo.;but see Featsent v. City of Youngstown.) Courts have determined that such programs can serve as an incentive for employees to work their regular hours instead of using sick leave, similar to working holidays or bonuses for working particularly undesirable days. (See Chavez v. City of Albuquerque) Although there isn’t a Ninth Circuit case that has specifically addressed this issue, the Department of Labor has addressed this issue and agrees with the predominate view. Thus, failure to allow the cash out of sick leave to be included in the regular rate of pay carries some risk of a challenge. Also, based on Department of Labor Regulations, the inclusion in the regular rate must be apportioned back over the time it was intended to compensate. This will likely require recalculating overtime over the entire previous year. If that sounds strange, please take a look at 29 CFR section 778.209(a), which says, “When the amount of the bonus can be ascertained, it must be apportioned back over the workweeks of the period during which it may be said to have been earned.”

These are just two forms of pay which require careful consideration when analyzing your FLSA regular rate calculations. If discrepancies are found, this is a good opportunity to audit your regular rate calculations.