DOL Issues FLSA Opinion Letter Addressing Reasonable Relationship Test

Overview:  In furtherance of a practice reinstituted earlier this year, the DOL’s Wage Hour Division (WHD) issued Opinion Letter FLSA 2018-25 which provides guidance to employers paying exempt employees on an hourly, daily, or shift basis by addressing the requirement in 29 C.F.R. Section 541.604(b) that a “reasonable relationship” exist between an exempt employee’s guaranteed amount and the amount actually earned.

Details:

Opinion Letter FLSA 2018-25 is in response to a request for an opinion “concerning whether a guaranteed weekly salary for a professional employee has a ‘reasonable relationship’ with his or her ‘usual earnings’ for purposes of determining whether the employee is paid a salary under 29 C.F.R. § 541.604(b).” 

29 C.F.R. § 541.604(b) permits an “exempt employee's earnings [to] be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee . . . and a reasonable relationship exists between the guaranteed amount and the amount actually earned.  The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee's usual earnings at the assigned hourly, daily or shift rate for the employee's normal scheduled workweek.”

The opinion letter provides that a 1.5 to 1 ratio of actual earnings to guaranteed weekly salary constitutes a reasonable relationship under the regulations.  The opinion letter further provides that using a calendar year for purposes of calculating an employee’s average weekly earnings was a reasonable method when the employee’s hours and earning fluctuated widely from workweek to workweek.