In many industries, employees regularly travel during their workday. In general, when exempt executive, administrative or professional employees or outside sales employees travel, employers need not worry about travel time pay since the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA) and most state laws do not apply to these employees. However, a recent U.S. Department of Labor (DOL) Opinion Letter reminds employers that travel time for non-exempt employees is an important but often overlooked area where even conscientious employers can find themselves in violation.
In Opinion Letter FLSA2018-28, a home health aide agency asked the DOL to approve its pay practices for traveling home health aides. The agency provides services to clients in their homes, which sometimes requires its home health aides to travel during the day. The employer agency stated that “[a] typical standard rate of pay is $10.00 per hour with a client including travel time.” Although the Opinion Letter does not specify, it appears that only time spent with a client is compensated; not travel time. The employer agency stated that, when calculating pay, it made sure to divide all remuneration earned by all hours worked in a workweek – including travel time – and ensured it was above the applicable federal and state minimum wage. It also stated that, when an employee worked more than 40 hours in a workweek, they would be paid time and a half for all hours over 40 at a rate of $10.00. The DOL’s Opinion Letter response – though only two pages long – is chocked-full of important reminders for all employers.
Travel Time Compensability
Travel time may or may not need to be counted as “hours worked” under the FLSA depending on the nature of the travel. An employee’s regular commute to and from work is generally not considered “hours worked” under the FLSA, though significant travel for an after-hours emergency may need to be included as hours worked. Special rules also apply when non-exempt employees travel to and from another city for work during a single day (both travel and work time generally must be counted as hours worked) or when a non-exempt employee’s travel keeps them away from home overnight (travel during regular work hours generally must be counted, but not time as a passenger during non-working hours). Outside of these relatively narrow exceptions, all other time spent by an employee in travel as part of his or her job duties, such as travel from job site to job site during the workday, must be counted as hours worked.
Why Travel Time Matters Under the FLSA
Employers and employees alike often overlook travel time when calculating hours worked during a workweek, but properly counting travel time is essential to compliance with the FLSA’s minimum wage and overtime requirements. The FLSA requires that a non-exempt employee’s “regular rate” of pay equal or exceed the federal minimum wage – currently $7.25 per hour. An additional overtime premium of at least 1.5 times the employee’s “regular rate” must also be paid when an employee works more than 40 hours in a workweek. An employee’s “regular rate” of pay is generally the total of all remuneration to an employee – except certain payments excluded by the FLSA – divided by all hours worked.
An employer who forgets to count compensable travel time when calculating an employee’s “regular rate” of pay runs the risk of paying employees below the applicable minimum wage or failing to pay overtime. Consider an example based on the Opinion Letter where a home health aide worked 25 hours with clients and spent 20 hours traveling between clients. The home health agency only pays $10.00 per hour for time spent with a client, so the aide would be paid $250 for that week. Dividing all remuneration ($250) by all hours worked (45 hours: 25 hours with clients plus 20 hours of travel) yields a “regular rate” of $5.56 per hour. If the employer agency forgot to include travel time, it would only have paid health aides at a regular rate of $5.56 per hour, which is well below the required federal minimum wage. The DOL approved of the home health agency’s compensation plan in the Opinion Letter only because the employer represented that it included travel time in calculating the regular rate and would make up any shortfall in the minimum wage owed. If the employer neglected to count travel time, they would also have likely failed to pay required overtime on the 5 hours of overtime worked during the workweek.
Strategies for Dealing with Travel Time
Employers seeking to avoid FLSA violations arising from travel time should first make sure they understand what travel must be counted as hours worked and ensure that their payroll practices include such time when necessary. Armed with the knowledge of what is and what is not compensable, the employer can then structure non-exempt employee work and travel accordingly. Because of the uncertainties attending non-exempt travel time, many employers simply do not use non-exempt employees for work or projects that require travel.
But the needs of many businesses often require non-exempt employees to travel as part of their jobs and, in many industries, non-exempt employee travel is unavoidable. In these situations, a more common strategy for dealing with travel time is to pay employees for travel at a different, lower rate, than it pays for other work. The FLSA does not require that all work be compensated at the same hourly rate; to the contrary, the FLSA’s regulations expressly contemplate that employees may be paid at different hourly rates for different kinds of work. Thus, in the situation presented by the Opinion Letter, the employer agency could have paid aides’ travel at minimum wage – $7.25 per hour (or the applicable State minimum wage) – for time spent traveling. Although this will require the employer to properly calculate a blended rate for overtime hours worked during the week, it minimizes the costs of travel time while ensuring compliance with the FLSA’s requirements.
The Opinion Letter is frustratingly ambiguous on whether the home health agency employer paid anything for travel time. It appears that the employer paid nothing for travel time and instead only paid aides for time spent with clients. The employer agency then apparently paid the employee any difference between their regular rate and the required minimum wage. Although the DOL approved of this unusual approach for purposes of complying with the FLSA’s minimum wage requirements, employers should exercise caution before employing a similar strategy for several reasons.
First, the administrative burden of such a strategy is significant. During each workweek, the employer would need to determine what each non-exempt employee’s “regular rate” is and then calculate and add to their pay any difference between the “regular rate” and the applicable minimum wage. If the employer fails to perform these calculations correctly, it could result in an FLSA minimum wage violation.
Second, this strategy may not be permitted under the laws of some States or localities. The FLSA permits what is known as “pay averaging” – a practice where all pay is divided by all hours worked. So long as the average pay for all hours worked is above the federal minimum wage, the employer has met the minimum wage obligation of the FLSA. But “pay averaging” is not permitted in some states, notably California. In those states, every hour of working time must be paid at no less than minimum wage. Paying nothing for travel time might well be a violation of the State’s minimum wage law, even though it is acceptable under the FLSA. Employers who have operations in such States should tread carefully before adopting such a strategy.
Finally, the practical impact of paying nothing for travel should be evaluated. Employees who have to travel frequently may resent not being paid for the significant time they spend traveling. Refusing to pay for travel time may also make assignments requiring significant travel undesirable, and cause conflicts about who is tasked with such assignments. Employees who travel frequently without pay may also feel they are being treated less favorably than employees whose assignments do not include regular travel. If such an employee is a member of a protected group, they may claim their frequent uncompensated travel is a form of discrimination under federal or state laws. Even if they do not pursue a claim of discrimination, such employees might quit to work for a competitor in the same field who pays for travel time, or they might advocate for union representation to secure pay for such time.
The DOL’s opinion letter is a good reminder for employers who have to regularly deal with non-exempt employee travel time. Employers seeking to understand and perhaps streamline their compensation plans for traveling employees should do so in consultation with experienced wage and hour counsel who can ensure that their efforts do not create more problems than they solve.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in wage and hour matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.