In my last article, I discussed unexpected overtime liability for transportation companies under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 203 et. seq for non-exempt drivers. As a reminder, companies are generally required to pay non-exempt employees time-and-a-half, or 1.5 times their normal wage, for hours worked beyond 40 in a week. Although there are a number of exemptions to this requirement, the regulations involving trucking companies are particularly opaque and variable.
If feasible, the safest way of avoiding potential hidden overtime penalties is to simply structure driver pay rate in a way that allows for additional overtime payments. This may not be the ideal structure for some businesses, since it may create highly inconsistent pay rates that disproportionately pay out drivers who work more variable schedules and, on the other side, penalize drivers who keep a more regular work schedule. If your business needs more consistency in pay rates, it’s worthwhile to consult a lawyer about crafting a payment structure that falls within established FLSA exemptions.
Overtime payments under the FLSA are calculated as 1.5x the “regular rate,” which will vary by job, but is generally calculated as earnings in a week (without including overtime pay) divided by the number of hours worked. Here are some examples of payment structures for a driver:
There are some important caveats to keep in mind when structuring a policy to comply with the FLSA’s overtime payment policies.
First, payments should be calculated as a forward-looking structure, determined in advance of the employee beginning the work. In particular, the “regular rate” paid to employees (whether it be hourly, milage, commission, or otherwise) should not decrease if the employee works more than 40 hours in a week. Similarly, employees should not be given bonuses for working 40 hours or fewer in a week. Either scenario could be seen as an attempt to artificially reduce the guaranteed 1.5x overtime bonus, which would be unlawful under the FLSA.
Second, bonuses tied to hourly work (either directly or indirectly) must be included in the regular rate. However, the FLSA permits companies to pay a purely discretionary bonus at the end of the year without impacting the regular rate. This bonus must be purely discretionary, not guaranteed by contract, and not provided as an incentive for reaching certain productivity thresholds. For example, if a company is particularly profitable and provides $400 bonuses to drivers at the end of the year, that bonus would not need to be included in the calculation of the regular rate. However, if a company guarantees that drivers who hit 8000 miles in a month a year get an automatic $400 bonus, this $400 would be factored into the regular rate, and drivers claiming the bonus would therefore need to be paid additional overtime for each week that they worked over 40 hours that month.
Third, the FLSA permits a company to pay a floating (variable) rate, so long as that rate is determined before the work starts. For multiple jobs completed within a week (or a series of weeks), the regular rate is calculated as an average of all of those jobs (with a weighted average used for a job that spans beyond a workweek).
Fourth, variable payment work that spans from one workweek to another should be weighted based on the payment for each job and then averaged based on how much time in each workweek was spent on each job. For example, let’s assume a driver earns $600 for a 30-hour job that spans Monday through Wednesday, then earns $500 for a 20-hour job – spending 15 hours on Thursday and Friday and 5 hours the following week. In that case, the driver would have a rate of $20 for the first job ($600 / 30 hours) and $25 for the second job ($500 / 20 hours). The attributed earnings for the first week would therefore be $600 for the first job and $375 for the second job ($25*15), totaling $975. The regular rate would therefore be $975/45 = $21.66. The driver would be therefore entitled to $21.66 per hour for the first 40 hours and $32.50 per hour ($21.66*1.5) for the 5 overtime hours.
Fifth, reimbursements for work expenses (including gas) and payments for insurance/retirement plans are not included in the regular rate.
The FLSA’s wage/hour requirements are complex and nuanced, and companies can face harsh penalties and huge civil payments for noncompliance, even if the mistake was inadvertent. As such, it is of critical importance to have your company’s payment structure regularly reviewed by a professional. If you have questions, our legal team is happy to discuss with you further. For more information, please contact Matthias Kaseorg (firstname.lastname@example.org) at (804) 377-1273 or Steve Setliff (email@example.com) at (804) 377-1261.