This is the first of several posts dedicated to answering questions asked by attendees at the recent FLSA for Fire Departments live webinar. If you have questions like this, please consider attending the next live webinar in February 2021.
FLSA Question: Can uniform allowances paid to police officers and firefighters be excluded from the regular rate of pay? Does the employer have to demand receipts that show the money was spent on uniforms? Does the fact that the uniform allowance is taxed as a fringe benefit matter? For example, all firefighters and police officers receive an annual uniform allowance of $900 ($450 in January and $450 in July). The city reports this money as a taxable fringe benefit at the end of the year and there is no requirement to submit receipts that prove the money was used for the purchase/maintenance of uniforms or equipment.
Answer: As a general rule, all the money paid to an employee must be included in that employee’s regular rate of pay. Properly calculating the regular rate is critical since all FLSA overtime must be paid at a rate of at least time and one-half the employee’s regular rate. However, there are exceptions to this general rule. One of the more common exceptions relates to expense reimbursement. More information can be found in Department of Labor (DOL) regulations found at 29 CFR §778.217 entitled Reimbursement for expenses. This regulation excludes reimbursements, like clothing allowances, from an employee’s regular rate provided certain conditions are satisfied.
First, the employer must actually require the employee wear a uniform. Second, the amount of reimbursement must be reasonably approximate to amount expended by the employee for the purchase and maintenance of uniforms. There is no requirement that employees furnish a receipt for the expense, provided the reimbursement is “reasonably approximate” to the actual cost of expense. In the event a uniform allowance is determined to be disproportionately large [i.e., not reasonably approximate] in comparison to actual costs associated with the purchase and maintenance of uniforms, the excess amount must be included in the employee’s regular rate.
Finally, the fact that the employer is required, under the Internal Revenue Code [IRC], to report the reimbursement as a taxable fringe benefit should not impact whether the money must be included in the employee’s regular rate. The DOL recently confirmed this fact in a March 2020 opinion letter. In that letter, the DOL’s Wage and Hour Administrator, Cheryl M. Stanton wrote “[t]here is no presumption that income taxable under the IRC must be included in the regular rate.” Generally speaking, the primary analysis related to uniform allowances and the regular rate hinges on the reasonableness of the reimbursement.
Best practices require employers be able to justify that any uniform allowance provided to employees is reasonably approximate to the actual costs of upkeep and purchasing of uniforms. Keeping a list of required uniform and accessory items along with the costs of each item will go a long way in justifying excluding uniform allowances from an employee’s regular rate.