DOL Rings in the New Year with Updated FLSA Regs Likely to Impact Many Fire Departments – Part III – The Regular Rate

This is the third of a three-part series related to recent updates to Department of Labor (DOL) regulations pertaining to the FLSA. Click here for Part I and here for Part II. The updated regulations will undoubtedly affect many workers in different ways. However, for the purpose of this series, we will look at several key components of the update and how it may impact public safety professionals.

Scope of the Regular Rate Update

On December 12, 2019 the Department of Labor (DOL) announced the “first significant update to the regulations governing regular rate requirements under the Fair Labor Standards Act (FLSA) in over 50 years.” According to the DOL, the regular rate update—which was implemented on January 15, 2020is designed to “allow employers to more easily offer perks and benefits to their employees”. The DOL theorizes that employers would likely offer employees additional perks and benefits if those perks and benefits did not need to be included in the employee’s regular rate.

Proper calculation of an employee’s regular rate is critical. All FLSA overtime must be at least time and one-half of the employee’s regular rate. As a general rule, the FLSA requires all the money paid to, or on behalf of an employee, included in his or her regular rate subject to a few narrow exceptions.

Historically, there has been a great deal of litigation surrounding the FLSA’s regular rate requirements. Understandably, employers are frequently trying to exclude wage augments and other perks from an employee’s regular rate (i.e. lower the regular rate), while employees are looking to include these items in their regular rate. In this most recent update, the DOL is clarifying and in some instances expanding the number of limited wage augments that can be rightfully excluded from an employee’s regular rate of pay.

Specifically, in part III of this series, we will explore additions and clarifications to the regular rate regulations related to firefighters and holiday pay.

Holiday pay

Department of Labor regulations clearly state “payments made to an employee for periods during which he performs no work because of a holiday” do not need to be included in that employee’s regular rate of pay. Similarly, DOL regulations state that if an employee “forgoes” his or her day off on a holiday and receives extra compensation, in addition to their regular pay, that money is also excludable from the regular rate of pay.

Here are some basic examples of holiday pay that can easily be excluded from an employee’s regular rate:

Example 1: The office is closed on July 4. All employees receive a day’s pay and are not required to work that day. It is a holiday. (No need to include this holiday pay in the employee’s regular rate. The employee did not work due to a holiday.)

Example 2: An employee decides to forgo taking July 4 off. He or she goes into work to catch up on paperwork. They are paid for the worktime and also receive a day’s pay for the holiday. (No need to include holiday pay in the employee’s regular rate. The employee forgoes his or her holiday off by working.)

However, applying these seemingly simple regular rate concepts to firefighters, police officers, and other public safety professionals that work a 24/7 type of schedule has proven challenging to say the least. There has been a fair amount of litigation in the past few years over this exact issue. Would the examples listed above be applicable to firefighters that work a twenty-four or a forty-eight-hour shift?

First, is a firefighter receiving a day off because of a holiday?

Second, is a firefighter actually forgoing a day off when he or she works a holiday?

Most firefighters do not receive a day off because of a holiday. Similarly, most firefighters do not forgo a normal day off when scheduled to work a holiday. Firefighters are required to work on a particular holiday because that firefighter’s shift is scheduled to work on that particular day.

Additionally, many firefighters receive the same holiday pay whether or not they actually work on the holiday. Firefighters receive guaranteed compensation in recognition of various holidays paid at various times throughout the year. In these circumstances, the firefighters holiday pay is independent of his or her work schedule. At least one court has found some holiday payments made in this manner must be included in the employee’s regular rate.  

Now, to add to this confusion, some firefighters receive annual lump-sum holiday payments in lieu of pay for specific holidays throughout the year. For example, a hypothetical collective bargaining agreement stipulates firefighters receive a lump sum annual payment for 12 holidays every year regardless of their actual schedule. Firefighters on one particular shift may work 5 or 6 holidays, while the firefighters assigned to another shift work only 2 or 3 holidays… Yet they all receive the same amount of money designated as holiday pay and that pay is given to firefighters in one lump-sum annually. Most courts have found payments made in this manner must be included in an employee’s regular rate of pay.

In drafting this regular rate update, the DOL specifically looked to clarify that pay received by many firefighters—and other public safety professionals—in recognition of holidays does not need to be included in their regular rate of pay. In fact, the DOL even included a firefighter specific example within the regulations to bolster this position. 

Department of Labor regulations found at 29 CFR §778.219, entitled Pay for forgoing holidays and unused leave now provide the following:

(a) Sums payable whether employee works or not. As explained in § 778.218, certain payments made to an employee for periods during which he performs no work because of a holiday, vacation, or illness are not required to be included in the regular rate because they are not regarded as compensation for working. When an employee who is entitled to such paid leave forgoes the use of leave and instead receives a payment that is the approximate equivalent to the employees’ normal earnings for a similar period of working time, and is in addition to the employee’s normal compensation for hours worked, the sum allocable to the forgone leave may be excluded from the regular rate. Such payments may be excluded whether paid out during the pay period in which the holiday or prescheduled leave is forgone or as a lump sum at a later point in time. Since it is not compensation for work, pay for unused leave may not be credited toward overtime compensation due under the Act.

In an effort to bolster the DOL’s position regarding the regular rate, holiday pay, and firefighters, the following example has been added to the same regulation:

An employee is scheduled to work a set schedule of two 24-hour shifts on duty, followed by four 24-hour shifts off duty. This cycle repeats every six days. The employer recognizes ten holidays per year and provides employees with holiday pay for these days at amounts approximately equivalent to their normal earnings for a similar period of working time. Due to the cycle of the schedule, employees may be on duty during some recognized holidays and off duty during others, and due to the nature of their work, employees may be required to forgo a holiday if an emergency arises. In recognition of this fact, the employer provides the employees holiday pay regardless of whether the employee works on the holiday. If the employee works on the holiday, the employee will receive his or her regular salary in addition to the holiday pay. In these circumstances, the sum allocable to the holiday pay may be excluded from the regular rate.

It remains to be seen whether this update and clarification to the regular rate regulations will reduce the steady amount of litigation that stems from paying firefighters. However, it is abundantly obvious that the current DOL administration wants to provide employers with more flexibility and better defenses to lawsuits. It is also abundantly obvious that firefighters and other public safety professionals may see a decline in their overtime rate as a result of this newfound flexibility. 

Here is a copy of the Regular Rate Final Rule in its entirety.

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