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DOL Issues Opinion Letter on Per-Project Pay and Salary Basis Test

On January 7, 2020, the Department of Labor (DOL) issued an opinion letter, FLSA 2020-2, which addresses questions pertaining to the compensation of per-project payments under the Fair Labor Standards Act (FLSA). Within the letter, the question on whether compensation on a per-project basis satisfies the salary requirements for the minimum wage and overtime rules exemption under the FLSA is addressed.

For one, to be considered exempt from the minimum wage and overtime rules for an administrative or professional position, the individual must be paid on a salary or fee basis and must meet a standard salary level as established by the DOL. As of January 1, 2020, the DOL increased the standard salary level from $455 per week ($23,660 annually) to $684 per week ($35,568 annually). Thus, any employee working in an administrative or professional position making less than $684 per week must be considered non-exempt, and the minimum wage and overtime protection rules apply.

The DOL further states within FLSA 2020-2 that per-project payments can satisfy the fee basis test as long as payments do not vary from pay period to pay period, based on the number of hours worked or the quality of the work performed. The fee basis test is used to determine whether the fee payment meets the minimum salary level requirement under the FLSA.  The test is to evaluate the time worked on the job and determine whether the payment is at a rate that would amount to at least $684 per week if the employee worked 40 hours. Additionally, the opinion letter states that employers can increase or decrease an exempt project compensation if the payment is linked to variations within the scope of the project. However, the DOL cautions employers using this standard that the exemption status can be revoked if:

  • The employee’s biweekly compensation for a certain project is rarely the same from pay period to pay period; and
  • The circumstances suggest the amount of the payment is, in fact, actually based on the quantity or quality of work performed.

While FLSA 2020-2 is an opinion letter released by the DOL and not an official update to the FLSA, employers are encouraged to be mindful of their guidance and consider abiding by the opinion for any project work compensation for which they are engaged.

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