Baywood Home Care specializes in providing home health aides to provide companionship services for elderly or otherwise in need of assistance in their homes. Its payment system for those employee had been what is called a “split-day plan,” where the employees were paid straight time for the first five-and-a-half scheduled hours of the days and time-and-a-half for hours over 10.5 (employees worked 16 hour days). They maintained this plan throughout the course of a workweek, even if employees worked more than 48 hours in the week, the limit in Minnesota for hours worked in a week before receiving time-and-a-half.
In 2014, employees complained about this pay structure to the Department of Labor and Industry, stating that they were not being paid the overtime rate after 48 hours worked in a week. Following an investigation, the Department issued a compliance order for Baywood to pay $557,713 to it employees for unpaid overtime. Baywood appealed to the Office of Administrative Hearings, which found that Baywood paid its employees the same rate for all hours worked, and even if it did pay its employees using the split-day plan, it had to include the rate for the final 10.5 hours worked each day in its calculation of the regular rate.
Baywood appealed to the court of appeals and the case was remanded, following the court’s conclusion that a question existed over whether Baywood was using a split-day plan and that the premium payments for the final 10.5 hours of the day could possibly have been excluded from the regular rate. That decision was appealed to the Supreme Court of Minnesota.
Minn. Stat §177.25, subd. 1 states, “No employer may employ an employee for a workweek longer than 48 hours, unless the employee receives compensation in excess of 48 hours in a workweek at a rate of at least 1-1/2 times the regular rate at which the employee is employed.” In defending itself, Baywood argued that the time-and-a-half rate it paid its employees for the last 10.5 hours of its shift should be credited to the time-and-a-half requirement of the statute. The Court disagreed.
In doing so, the Court applied the Webster’s Dictionary definition of “in excess of,” which supported the Department’s interpretation that all hours worked after 48 needed to be paid at the higher rate. The Court found that Baywood’s interpretation would require them to read words into the statute that were not present. The Court concluded that the employer must pay for work beyond 48 hours in a week “at a rate of at least 1-1/2 times the employee’s regular rate for any additional hours worked, regardless of how the employee was compensated prior to working 48 hours.”
On top of that, the Court found that the time-and-a-half payments Baywood was making to its employees for the last 10.5 hours of the day were regularly-scheduled hours for which Baywood paid its employees a premium rate, and the rate of pay agreed upon between Baywood and its employees included the premium payments. The Court relied on a rule promulgated by the department to define the regular rate, Minn. R. 5200.0130, which states that “the regular rate of pay is determined by dividing the employee’s remuneration in any workweek by the total hours worked.” The Court found that the premium payments which were part of Baywood’s structure were not overtime payments, and could lead to abuse by employers.
As a result, the order issued by the Department of Labor and Industry was upheld, and gave employers another reason to re-evaluate their pay structures and overtime payments. It found that the split-day plan, in particular, was not permitted. It is possible that this decision has far-reaching implications. For those who pay employees time-and-a-half for hours worked beyond their regular shift, this may change the way you calculate your regular rate. The FLSA can be a tricky law to understand, and at the same time employers must comply with the state MNFLSA or risk further violations. It is important you get the right advice for paying your employees. If you or your organization need help navigating overtime rules and regulations, contact the Wiley Law Office, for payroll advice that works.