One issue that seems to yield an endless barrage of confusion in the oil fields and off-shore activities germane to the Texas oil and gas business is the application of a “day rate” to a company’s employees. The Department of Labor (DOL) has promulgated regulations regarding these, and the Courts have expressed their view on when they apply and when they do not. Perhaps the most important rule to remember as an employer is this: when you pay a “day rate,” include all forms of compensation within it. If you need help with this, please contact competent counsel.
The danger here is that, if reviewed, both the DOL and the Courts may construe an employer’s “day rate” plan invalid if employees are either not paid a day rate consistently or their compensation routinely includes other aspects beyond the calculated day rate, including hourly wages, salary or mandatory tips. This is important because such additional payments could ultimately be construed to be part of pay and, therefore, used to calculate any overtime owed. So, how does an employer stay within the law?
To use a “day rate,” either by the job or per day, 29 CFR 778.112 provides:
“If the employee is paid a flat sum for a day’s work or for doing a particular job, without regard to the number of hours worked in the day or at the job, and if he receives no other form of compensation for services, his regular rate is determined by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. He is then entitled to extra half-time pay at this rate for all hours worked in excess of 40 in the workweek.”
The regulation does not tell us what “other compensation” means, but the Courts have spoken about it. They have said that:
“[T]he most logical and likely reasoning is that the regulation does not apply if one of the other forms of compensation delineated in the surrounding regulations is also utilized, or if the employee is given some other form of compensation separate and apart from the job rate. For example, if besides a job rate, an employee also receives an hourly rate, salary, or commission, for some of his work, the job rate regulation would not apply. To do otherwise would mean the employee was working at different rates, calculated in different ways either on the particular job for which a job rate is claimed or for different tasks. [This] does not mean that there cannot be more than one component in computing the job rate. So long as they are all calculated as part of the job rate, there is no inconsistency that might result as it would from having a job rate and a separate hourly rate, salary, or commission engrafted onto the job rate.”
See Coffey v. Blessey Marine Services (S.D. Tex., March 23, 2012) (citing Rodriguez v. Cary Int’l, Inc. (S.D. Fla., September 14, 2004)). To put it simply, when calculating and using a day rate, employers should make certain they include all forms of compensation they plan to pay within that day rate. As in most all legal issues, however, there are always exceptions, and we at the Wage & Hour Defense Institute stand ready to assist with any particular questions you may have.
Bryant Banes, Managing Shareholder, Neel, Hooper & Banes, P.C., Houston, Texas