Today’s FLSA Question: I am the chief of a small but increasingly busy volunteer fire and EMS department. Our volunteers are paid $12 per hour when responding to calls. I was picking up the firefighters’ 1099s last month, and the accountant asked me a question about “our employees.” This caught me by surprise. I told her we have volunteers, not employees. . . .Then she pointed out that we pay our volunteers more than the minimum wage, and that one of our “volunteers” earned more than $10,000 last year. Then I started thinking: They are volunteers, right?
Your accountant raises a valid point. Paying volunteers an hourly rate is not a good practice. Paying a volunteer more than $10,000 per year may raise serious doubts over his or her volunteer status. In order to fully answer this question, more information is needed. But, to get a better understanding of the issues this question raises, let’s look at the way the FLSA and the Department of Labor (DOL) treat payments made to volunteers.
The good news is the FLSA allows public agency volunteers to be paid “expenses, reasonable benefits, or a nominal fee, or any combination thereof.” The bad news is the FLSA and regulations prohibit a volunteer receiving any compensation from his or her volunteer activities. How do you draw a line between compensation and a nominal fee? At what point does a volunteer become an employee?
There is no bright-line rule that defines when a volunteer becomes an employee. That determination can be made only after a careful examination of the relationship between the volunteer and the potential employer. Generally, courts utilize an “economic realities test” based on the “totality of the circumstances” to determine if a volunteer is an employee. This means the court will examine all the different factors present in the relationship. Frequently, the amount and manner in which the volunteer is paid will prove very important. There are certain “red flags” that volunteer fire chiefs should try to avoid when looking to provide their volunteers a nominal fee.
Volunteers and the FLSA
DOL regulations define a volunteer as “[a]n individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered.” This makes sense. Why does a volunteer expend time, energy, and resources? The answers vary, but include being a good citizen, giving back to the community, helping the needy, pride, and so on.
Now consider the following excerpt from the FLSA:
The term “employee” does not include any individual who volunteers to perform services for a public agency which is a State, a political subdivision of a State, or an interstate governmental agency, if—
(i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered. . . .
Now, we are interjecting paid expenses, reasonable benefits, and nominal fees into the equation. Again, this makes sense. The volunteer shouldn’t be spending his or her own money in addition to time and effort while volunteering. The person should be reimbursed expenses and provided some reasonable benefits, maybe provided with a token fee for his or her time.
In fact, in 1985, when many of these provisions were being created, the DOL considered volunteer firefighters when drafting rules surrounding nominal fees. At that time the National Volunteer Fire Council (NVFC) estimated that 30 percent of volunteer firefighters were paid a “small fee” for every fire call they responded too, and the DOL did not intend to invalidate those types of plans with any of the new regulations.
What is a Nominal Fee?
There are several regulations pertaining to volunteers and nominal fees. In addition, the DOL has issued numerous opinions detailing what it considers acceptable nominal fees. Both the regulations and the DOL clearly state that nominal fees cannot be related to productivity. See 29 CFR §553.106(e). Additionally, the DOL has gone a step further and has attempted to place a value on what would be considered an acceptable nominal fee. According to the DOL, a nominal fee provided to a volunteer cannot be greater than 20 percent of the cost the employer would pay a full-time employee to perform the same services.
What does “tied to productivity” mean?
The DOL and several courts have found that paying volunteers by the hour is tied to productivity. The theory is that a volunteer is expected to be productive during the time they are paid. Therefore, generally speaking, even if the hourly pay the volunteer receives is truly nominal, the act of paying it per hour may negate an individual’s volunteer status. However, the regulations provide a viable alternative (specifically for volunteer fire chiefs who may be struggling with this issue) which can be found at §553.106(e):
[T]his does not preclude the payment of a nominal amount on a “per call” or similar basis to volunteer firefighters. The following factors will be among those examined in determining whether a given amount is nominal: The distance traveled and the time and effort expended by the volunteer; whether the volunteer has agreed to be available around-the-clock or only during certain specified time periods; and whether the volunteer provides services as needed or throughout the year. An individual who volunteers to provide periodic services on a year-round basis may receive a nominal monthly or annual stipend or fee without losing volunteer status.
Key to this analysis is whether the amount of time varies per call. For example, a volunteer firefighter receives a nominal fee per call, not per hour. Some calls may last two, three, or even four hours, while others may only last 20 minutes.
Red Flag Tip #1: Avoid paying volunteer firefighters by the hour.
20 Percent Rule
Next, in order for a fee to be considered nominal, the DOL has issued the following general guideline:
[The labor] [d]epartment finds that a fee paid is (apart from expenses) nominal as long as it does not exceed 20 percent of the amount that otherwise would be required to hire a permanent employee for the same services. DOL Opinion Letter FLSA2006-28 (Aug. 7, 2006)
The DOL further stated in the same letter:
A willingness to volunteer for 20 percent of the prevailing wage for the job is also a likely indication of the spirit of volunteerism contemplated by the 1985 amendments to the FLSA. We believe this interpretation of “nominal fee” applies equally in the context of firefighters.
This 2006 DOL opinion letter was clearly meant to provide guidance for volunteer organizations looking to provide nominal fees to volunteers. Additionally, the DOL has crafted numerous similar opinions regarding volunteer firefighters and nominal fees. It should be noted the FLSA and regulations do not contain any reference to the 20 percent rule. Courts are not required to follow DOL opinion, however this information is still valuable for volunteer organizations.
Red Flag Tip #2: Avoid paying volunteer firefighters significant amounts of money, which could exceed twenty percent of the cost of hiring a full-time firefighter.
Back to your question. Chief, as I hope you can see now, your biggest potential problem is paying the volunteer firefighters by the hour. That fact alone could undermine your ability to treat your firefighters as volunteers. Assuming it does not, your next biggest issue is whether the $10,000 plus that some of your volunteers receive may be viewed as more than nominal. But that can be determined with certainty only by gathering more facts. You should run this one past local counsel.
Well-intentioned city leaders can find themselves on the wrong end of costly FLSA litigation if they are not considering these types of issues. This is one of the many topics covered in-depth at all of the upcoming FLSA for Fire Department classes. Register by March 1st and save as much as $125. See more information below.