Non-exempt employees – what counts as wages?
June 12th, 2018
Jill S. Kirila, Meghan E Hill and Shennan Harris at Squire Patton Boggs
This blog is an excerpt from our book Wages and Hours – An Employer's Guide by Jill S. Kirila, Meghan E. Hill and Shennan Harris at Squire Patton Boggs. For more information, go to the Products tab above and click on "Federal" to subscribe.
Under the Fair Labor Standards Act (FLSA), “wages” paid to an employee are defined to include money, but may also include “facilities” such as the reasonable cost or fair value of board, lodging, or other facilities similar to board and lodging which are customarily furnished by the employer for the employee’s benefit.
Examples of other facilities are:
- meals provided at company cafeterias
- tuition provided by a college to student employees
- general merchandise provided at company stores
- transportation provided to and from work by the employer.
The FLSA permits employers to pay wages in facilities in addition to the employee’s cash wage or as deductions from the stipulated cash wage.
In lieu of minimum wage
An employer may meet its obligation to pay minimum wage and overtime payments by furnishing board, lodging, and other facilities. An employer may not make a profit from the facilities, but may only treat the reasonable cost of the facilities as part of its minimum wage and overtime obligations.
- “Reasonable cost” is an amount not more than the employer’s actual costs plus depreciation, if applicable. If the fair value, as determined by the Department of Labor (DOL), is lower than the employer’s reasonable costs, only the fair value may be treated as wages.
An employer spends $7 per person providing a meal for its employees. If the DOL later determines the fair value of the meal is only $5, the employer will be permitted only to credit $5 toward the employee’s cash wages.
- The reasonable cost of board, lodging, and other facilities may be considered part of minimum wages and overtime only where the facilities are customarily furnished to the employee. Facilities are “customarily” furnished if they are regularly supplied by the employer to its employees or if provision of the facilities is customary for the industry.
An employer whose facility does not have easy access to restaurants provides meals to its workers. These meals are “customarily” furnished and the reasonable cost of the meal may be considered wages because they are regularly supplied.
Employers may not deduct from the minimum wage requirement the cost of furnishing facilities where the facilities are primarily for the benefit of the employer. Items which are primarily for the employer’s benefit include charges for uniform purchase or rental and medical charges required to be paid by the employer under workers’ compensation laws. Meals provided by the employer are, however, considered to be for the benefit of the employee and may be considered wages for purposes of applying toward the minimum wage. The employee’s acceptance of board, lodging, or other facilities in lieu of cash wages must be completely voluntary and not coerced.
Items not facilities
The DOL has determined the following items are not "facilities":
- shares of stock
- "dues" to chambers of commerce
- charges for rental of uniforms where the nature of the business requires the employee to wear a uniform.
Employees also may not be required to provide uniforms or tools of the trade used for an employer’s particular work where the cost of such tools would reduce payments to the employee below the required minimum wage or overtime amounts for any work week.
Methods of payment
Employees must be paid either in cash (which includes payment by check) or through board, lodging, or other facilities. While employers may use devices such as “scrip” (vouchers), coupons, or tokens to keep track of work performed, the devices must be exchangeable for cash wages at the end of the pay period.
Whether or not employees can be compelled to accept their wages by direct deposit or payment by payroll debit card (also called “paycard”) is a matter of state law.
Commonly asked questions and answers
Q. Does anything besides monetary compensation to employers count as wages?
A. Yes. “Wages” may include the reasonable costs or fair value of board, lodging, or other facilities customarily furnished by the employer for the employee’s benefit. Some examples of non-cash wages include meals at company cafeterias, tuition furnished by a college to student employees, merchandise furnished at company stores and transportation to and from work.
Q. We pay employees at least minimum wage, but also provide their housing. Do we need to take the value of the housing into account when computing the employee's overtime?
A. Yes. The FLSA requires this lodging to be included in the employee’s regular hourly rate for purposes of computing overtime. This has the effect of increasing the overtime owed. In order to compute the employee’s overtime correctly, the reasonable cost of the lodging should be considered a similar bonus. The same calculation is performed as for bonuses.
Q. What types of benefits do not count as facilities in place of wages?
A. Facilities provided primarily for the employer’s benefit. The DOL has determined that shares of stock, dues to chamber of commerce, and provision of uniforms where the employer requires employee uniforms are not facilities that may be considered wages.