Longevity Pay and Regular Rate

Today’s FLSA Question: Does longevity pay need to be included in a firefighter’s regular rate of pay? What if the firefighter receives longevity pay in a lump sum every year?

Yes, most longevity payments need to be included in the regular rate. Whether the money is paid annually, quarterly, weekly, or even hourly does not change this fact. Receiving longevity pay on an annual or quarterly basis may tend to complicate calculating the correct regular rate, but that does not qualify as a reason to exclude the money from the regular rate.

The FLSA is premised on a general rule that the regular rate must include “all remuneration for employment paid to, or on behalf of, the employee.” That means virtually all the money an employee receives from his or her employer must be included in the regular rate. There are a few very narrow exceptions to this general rule. However, courts and the Department of Labor (DOL) have consistently found longevity pay does not fit within any of the exceptions.

Since the FLSA and DOL regulations do not contain exhaustive lists of the various types of payments that need to be included in the regular rate, many employers either attempt to “shoehorn” longevity payments within the few narrow exceptions or find other unique ways to avoid including longevity in the regular rate.

Here are a few examples:

• Fifth Circuit Court of Appeals: A city argued that longevity payments made to police officers were merely “discretionary bonuses” and provided only because of the city’s “goodwill” towards the officers. There is an exception for some “discretionary bonuses.” Some bonuses paid at the “sole discretion” of the employer can rightfully be excluded from the regular rate. The court even acknowledged that under some circumstances longevity could be considered a sole discretion bonus. However, in this instance, the employment contract required longevity payments. . . . The court asked how can a payment be discretionary if it is required under an employment contract? The police officers prevailed. The longevity payments needed to be included in the regular rate.
• Sixth Circuit Court of Appeals: A city unsuccessfully argued that police officers had bargained away their right to have longevity pay included in the regular rate. Here, the city argued that “. . . police officers traded away their rights” to have longevity and other wage augments included in the regular rate by receiving additional, non-FLSA overtime through a collective bargaining agreement. Remember, it is not uncommon for employees to receive, through collective bargaining, wage enhancements above what FLSA requires. The court quickly dismissed the city’s argument and required the longevity pay included in the regular rate.
• First Circuit Court of Appeals: A town argued that longevity pay should not be included in the regular rate partly because it was paid “on an annual basis.” The court concluded the town’s argument was “without merit” and ruled that longevity pay must be included in the regular rate. The fact the money was paid annually, as opposed to hourly or weekly, may make computation more difficult, but it still must be included in the regular rate of pay.

Always remember the general rule: All remuneration paid to an employee must be included in the regular rate, unless it fits squarely within an exception. In the event a court or the DOL find an employer improperly excluded remuneration from an employee’s regular rate, the employer will usually be required to pay double the amount owed and attorneys’ fees for both the employer and the employee. These attorneys’ fees may even exceed the amount of back wages owed.

It is worth noting that, by coincidence, the three court decisions outlined above referenced longevity as it applies to police officers. But the same principles would certainly apply to firefighters and other municipal employees, to say the least. This is one of many topics discussed in-depth at all of the upcoming FLSA for Fire Departments classes. Please consider joining us.