FLSA2020-3 — Excludability of longevity payments from the regular rate of pay

U.S. Department of Labor
March 26, 2020
Dear Name*:
Wage and Hour Division
Washington, DC 20210
FLSA2020-3
This letter responds to your request for an opinion concerning whether payments made by the
City of*, Alabama (City), pursuant to a resolution of the City's Board of Commissioners, to full­
time employees at Christmas time based on their length of service must be included in the
employees' regular rate when calculating overtime pay under the Fair Labor Standards Act
(FLSA). This opinion is based exclusively on the facts you have presented. You represent that
you do not seek this opinion for any party that the Wage and Hour Division (WHD) is currently
investigating or for use in any litigation that commenced prior to your request.
BACKGROUND
In January 1981, the City's Board of Commissions passed a resolution (1981 Resolution)
providing that: "All eligible employees of the City ... shall be entitled to receive an incentive
award in the form of longevity award." An employee is eligible if he or she works full time and
has "been on the regular general fund payroll for a period of not less than five (5) full years."
The resolution further provides that each eligible employee "shall receive" a longevity award in
the amount of $2 per month for each whole year of the employee's tenure. You state that,
currently, the longevity award is paid every two weeks, but the City is contemplating paying out
the award in a one-time lump sum each year around Christmas time.
GENERAL LEGAL PRINCIPLES
The FLSA requires payment "at a rate not less than one and one-half times the regular rate at
which [ an employee] is employed" to all non-exempt employees for all hours worked in excess
of forty hours in a workweek. 29 U.S.C. § 207(a)(l). The regular rate includes "all
remuneration for employment paid to, or on behalf of, the employee," subject to eight statutory
exclusions. 29 U.S.C. § 207(e). In interpreting these exclusions, the Department is mindful of
the Supreme Court's instruction to give the exclusions a "fair (rather than a narrow)
interpretation" because the FLSA's exemptions are "as much a part of the FLSA's purpose as the
[minimum wage and] overtime-pay requirement[s]." Encino Motorcars, LLC v. Navarro, 138 S.
Ct. 1134, 1142 (2018) (internal quotation marks and citation omitted). "And that is as should be
expected, because employees' rights are not the only ones at issue and, in fact, are not always
separate from and at odds with their employers' interests." Sec '.Y US Dep 't of Labor v. Bristol
Excavating, Inc., 935 F.3d 122, 135 (3d Cir. 2019) (citing Encino in resolving a regular rate
issue).
One of the§ 207(e) exclusions covers "payments in the nature of gifts made at Christmas time or
on other special occasions, as a reward for service, the amounts of which are not measured by or
dependent on hours worked, production, or efficiency." 29 U.S.C. § 207(e)(l). The