HR REPORT: NHMA Employment Law Hotline: Question and Answer Series

Anna B. Cole, Esquire

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Drummond Woodsum partners with the New Hampshire Municipal Association to provide a free Employment Law Hotline service, through which we provide general legal advice to NHMA members.  We receive a number of recurring inquiries through the hotline and decided to establish a running series in which we periodically use the HR Report to address a hot issue.

Question: If a Town pays a non-exempt employee an additional stipend to perform certain work (such as keeping minutes for an elected board), do the hours spent working in the “stipend position” count for the purposes of determining the employee’s entitlement to overtime?

Answer:  In brief, yes.  The federal and state wage and hour laws require that all employees be classified as either exempt or non-exempt.  Here, the Town has already determined that the employee’s primary job for the employer is a non-exempt role.  The FLSA and state law require that non-exempt employees (1) report all hours worked, (2) be paid at least minimum wage (currently $7.25/hour) for every hour worked, and (3), with limited exceptions for police and fire personnel, be paid at least 1 ½ their “regular rate” of pay for every hour worked over 40 hours in a 7-day work week.  If a municipality employs an individual in more than one non-exempt job all hours worked for the Town (regardless of which job is being performed) all hours worked must be tracked and added together to determine whether the individual has worked more than 40 hours.  That being the case, we recommend that each employee complete only one time card, regardless of how many different roles/functions they may perform for a municipality, to ensure that their hours worked are properly considered for overtime purposes.

If the total hours worked by the non-exempt employee exceed 40 hours, the employer must determine the employee’s “regular rate” to ensure the employee is being properly compensated for all overtime hours.  An employee’s “regular rate” is determined by dividing the employee’s total compensation in any workweek by the total number of hours actually worked in that workweek.  When an employee works at different base hourly rates for the same employer, that calculation will result in a weighted average of those hourly rates, which is then used as the “regular rate” for overtime purposes.  If one of the employee’s duties has been compensated on a stipend basis, the Town would first need to determine how much of the stipend should be attributed to the particular work week.  This would likely be done by converting the stipend into an hourly rate based on the number of hours the employee spends performing the stipend-related duties.  Once that calculation is complete you can determine the weighted average.  For example, assume the employee’s regular hourly pay for the primary job is $20/hour and they receive a $2,000 stipend per year for specific additional duties (“stipend duties”) with the expectation that the stipend duties require 4 hours of work per week.  Accordingly, reduced to an hourly rate, the employee receives $9.62 per hour for the stipend duties.  Assume that, in a particular week, the employee works 40 hours in their primary job in addition to the 4 hours of stipend duties (i.e., 44 hours of work total for the employer) and that the employee receives no other compensation from the employer (aside from their regular straight time pay and the stipend) during this period.  In those circumstances, the employee’s total straight time earnings would be $838.48 ((40 hours x $20/hour = $800) + (4 hours x $9.62/hour = $38.48), and the weighted average regular rate would be $19.06.  Using this regular rate, the employee’s time and one-half rate for overtime purposes would be $28.59.  Easy!

Just kidding.  Nothing is that easy.  The example above presumes that the stipend amount is sufficient to meet the current minimum wage of $7.25 per hour.  If the stipend converted to an hourly rate is less than minimum wage, the amount paid will need to be increased to avoid a minimum wage law violation. 

The best practice is to pay non-exempt employees on an hourly basis, rather than on a stipend basis.  Use of a stipend can also lead to other problems, as the New Hampshire Department of Labor would expect that the employee be paid on a regular payroll cycle basis rather than in a lump sum at year end for the work performed

Please note that in limited circumstances a non-exempt employee can provide volunteer services to a community, so long as such volunteer services are “not the same type of services” that the employee is employed to provide to the municipality.  For example, a paid police officer can serve as a volunteer firefighter in the same community, with only the hours worked as a police officer considered for overtime purposes.  Whether the volunteer services are “not the same type of services” can be tricky, particularly with administrative or clerical employees.  Whether a paid employee can also be a volunteer requires a close review of the facts.  Communities are encouraged to contact Town counsel determine if a particular employee’s volunteer services can be excluded from a determination of the number of hours worked in a pay week.

Additionally, if employee in our example’s primary job for the Town qualified that employee exempt, the answer would be different.  Generally, an exempt employee can perform concurrent or additional non-exempt duties as long as their “primary duty” is the performance of the exempt function.  For example, a Public Works Director who is considered an exempt executive employee can mow ballfields during the work day or be the note taker at a Planning Board meeting, as long as the performance of exempt executive functions remains the employee’s primary duty. 

This is not a legal document nor is it intended to serve as legal advice or a legal opinion.  Drummond Woodsum & MacMahon, P.A. makes no representations that this is a complete or final description or procedure that would ensure legal compliance and does not intend that the reader should rely on it as such.