Wage and Hour Basics Series: The "Fee Basis" and the Proposed FLSA Regulations
July 24, 2015
As we have discussed in the past, to be eligible for one of the “white collar” exemptions (executive, administrative, or professional) or as a highly compensated employee (HCE), Section 541.600 of the FLSA regulations requires employers to compensate employees on a salary basis (currently $455 for white collar exemptions, but likely rising to around $970, and from $100,000 to $122,148 for HCEs), exclusive of board, lodging or other facilities. Under the current and, likely, the new regulations, exempt administrative, professional and highly compensated employees may also be paid that minimum weekly rate on a “fee basis.”
The Fee Basis
What is a “fee basis” for purposes of the regulations? Section 541.605 explains that an employee “will be considered to be paid on a ‘fee basis’ within the meaning of these regulations if the employee is paid an agreed sum for a single job regardless of the time required for its completion.” Fee basis payments cannot be based on the number of hours or days worked, only the accomplishment of a task. Does this sound like piecework that other parts of the regulations permit? It should, but with one critical difference outlined in the regulations: Fee basis payments to exempt employees are generally paid “for the kind of job that is unique.” Piecework payments to non-exempt workers are typically made for an indefinite series of repeated, identical jobs.
As one common example, many home health care providers make fee basis payments to registered nurses on a “per-visit basis.” For purposes of our example, assume that the RNs treat patients, devise healthcare protocols, update the patient and the patient’s family regarding the patient’s condition, and, at times, supervise visits made by licensed practical nurses. In other words, the visits are “the kind of job that is unique,” as required by the regulations (I mention this because not all home health care nurses perform unique duties, and this “uniqueness” issue has been the subject of litigation and DOL opinions in the past). The RN would receive a certain amount for each visit they complete, as opposed to a salary (perhaps with incentives for the number of visits). A per visit payment plan could work by paying a nurse an amount such as $50 per visit completed.
To evaluate whether the fee basis payments meet the salary level requirements, you need to know the number of hours that the employee worked on each fee basis job. Fee basis payments only meet the salary level requirement for an exemption (here, the professional exemption for a registered nurse) if based on the time worked to complete the job, the fee is paid at a rate that would equal at least the current $455 per week if the employee worked 40 hours.
Let’s take two jobs. In the first job, our nurse works 4 hours for the $50 fee. In the second job, our nurse works 30 minutes for the same $50 fee. Would these rates yield enough to meet the salary level for each job? Job 2’s payment clearly meets the salary level test. Our nurse received $50 for 30 minutes of work, or the equivalent of $100 per hour. Over 40 hours, that rate would yield $4,000, which is far more than the current $455/week level or the proposed level. Job 1, however, is more tricky. $50 for 4 hours of work equates to $12.50 per hour. If the nurse had worked 40 hours at that rate, he or she would have received $500. That is more than the current $455/week level, but not above the proposed level.
Obviously, paying exempt employees on a fee basis gets more difficult with a higher salary level. At $970 per week, variations in the length of time required to complete a job could more easily take an employee under the threshold, just as in our Job 1 example. In a future post, we’ll discuss what happens when you “lose” the exemption for an employee because of an inadequate fee basis or, more seriously, due to improper deductions.
Confusion in the DOL’s Proposed Regulations
A couple of eagle-eyed readers noticed that, currently, Section 541.600 of the regulations—the regulation defining the white collar exemptions—states that “Administrative and professional employees may also be paid on a fee basis as defined in § 541.605.” Critically, readers point out, that sentence is deleted from the new version of Section 541.600.
If that’s the case, it would have a substantial impact on home health care providers, accounting firms and others that rely on paying exempt professional or administrative employees on a fee basis. Here’s the good news: having looked at the revised regulations, I don’t think that is what the DOL is doing here. Instead, the DOL appears to be removing redundant language…at least I hope. The “general rules” for both the administrative and professional employee exemptions (Sections 541.200 and 541.300, respectively) still permit those exempt employees to be “[c]ompensated on a salary or fee basis.” The fee basis regulation itself, in Section 541.605, is unchanged, too.
However, if I am wrong, and the DOL is not just cleaning up language, it could find grounds to delete the fee basis option from the administrative and professional employees general rules, too. That would mean that administrative and professional employees paid on a fee basis would lose their exemption under the new regulations. Even if the fee basis option remains, the drastically higher salary threshold could mean greater difficulty in meeting the salary level on each job. If your business relies on paying exempt professional or administrative employees on a fee basis, take advantage of the public comment period on the new FLSA regulations that runs through September 4, 2015 and ask the DOL to explain why it deleted the sentence from Section 541.605 and outline the impact that the new regulations will have for you on the availability and utility of the fee basis.