With employees requesting time off for upcoming holidays and flu season beginning, employers should review holiday pay and sick leave buyback provisions to ensure compliance with the FLSA regular rate of pay requirements. The FLSA requires that an employee who works overtime must be compensated for those overtime hours at a rate of at least one and one-half times the employee’s regular rate of pay. The regular rate of pay is not necessarily (and often not) their hourly pay or base pay. Employers must consider the various other types of compensation that the employees receive. Regular rate of pay includes “all remuneration for employment paid to, or on behalf of, the employee,” with the exception of certain payments that are specifically excluded under FLSA. Currently, the law is unsettled as to whether certain forms of holiday pay and/or sick leave buy backs are subject to being included in calculating the regular rate of pay an employee’s FLSA overtime pay.
Generally speaking, there are three primary types of holiday pay at public agencies: pay for taking a holiday off; extra pay for working on a holiday; and holiday-in-lieu pay. Pay received for taking a holiday off is not included in the regular rate of pay. For employees who work on a holiday and receive extra pay for working on the holiday (although this is not required by the FLSA, virtually every public employer pays time and a half for working on a holiday) that extra pay is excluded in calculating the FLSA regular rate of pay. Holiday-in-lieu pay may take the form of leave or cash payment. If it is paid as leave, it is likely not included in the regular rate of pay. If it is paid in cash lump sums irrespective of when holidays occur, it may need to be included in the regular rate. Because the law is unsettled on this point, seek the advice of counsel with specific questions.
As for whether sick leave buy-backs need to be included in the regular rate, there is no Ninth Circuit decision that addresses this issue. Outside of the Ninth Circuit, the predominate view regarding payments to employees who do not use their sick leave is that such payments must also be included in the regular rate. (Chavez v. City of Albuquerque (10th Cir. 2011) 630 F.3d 1300; Acton v. City of Columbia, Mo. (8th Cir. 2006) 436 F.3d 969; but see Featsent v. City of Youngstown (6th Cir. 1995) 70 F.3d 900, 905.)
These are just two forms of pay which require careful consideration when analyzing your FLSA regular rate calculations. If discrepancies are found, this is a good opportunity to audit your regular rate calculations. Happy holidays!