With the Thanksgiving holiday ahead of us, we have reached the time of year where some employers start handing out Thanksgiving turkeys, holiday hams, and other gifts to employees, while others provide free or discounted lunches or other meals. You will find plenty of articles extolling the productivity virtues of well-fed employees. Employers in various industries—from hospitality to high technology to manufacturing—often have many good business reasons to provide meals, from cutting back on waste to teambuilding.
You can file this in the “no good deed goes unpunished” category, but this year’s turkeys, hams, and sandwiches have an additional complication that might give employers some indigestion: wage and hour laws and the hot new liability theory spurred by the IRS and some enterprising employees and attorneys.
I hinted at this topic last month when we discussed how the IRS had announced tighter tax enforcement of employer-provided meals and other fringe benefits. As I noted then, employees at Anheuser-Busch recently sued the company because, among other claims, it allegedly failed to include the value of “various forms of non-cash compensation, such as discounted and/or free beer” in calculations of those employees’ regular rates of pay. Whether you’re an employer or an employee, you might be shaking your head in amazement, but stick with me and don’t cancel those Omaha Steaks orders yet. Employers do need to understand the wage and hour implications of providing meals and fringe benefits to employees, but at the same time, not every turkey, dozen donuts, or Jimmy Johns run will lead to a lawsuit if you take some easy steps to limit your risk.
How do wage and hour laws impact those Thanksgiving turkeys you hand out? Take a look at the broad definition of “wages.” For instance, Florida statutes define wages as “all compensation paid by an employer or his or her agent for the performance of service by an employee, including the cash value of all compensation paid in any medium other than cash.”
As in the Anheuser-Busch case, non-exempt employees can argue that their hourly wages do not reflect the value of the free beer. In other words, beer is “compensation paid” in a “medium other than cash” that employers must factor into the regular rate of pay. The free beer, or the value of the discount in the employee cafeteria, or that Thanksgiving turkey “bonus” increases the per-hour regular rate! To take a simple example, if the employee receives a $5 daily credit in the company cafeteria, those meals add up to an extra $25 per week in compensation paid in a “medium other than cash.” For an employee earning $9/hour and working 50 hours per week, that extra $25 would increase the straight-time rate to $9.50/hour and the overtime premium to $14.25/hour. That’s only $7.50 per week, but if you multiply that by roughly 50 workweeks each year, and again by the number of employees eating in the cafeteria, you’ll have more than enough to buy your local plaintiff’s attorney a lot of Thanksgiving turkeys.
As I suggested earlier, don’t cancel your free meal programs yet. Cancelling these policies is the easy way out. What about all of that camaraderie and productivity? Those benefits aren’t illusory, and there are ways to carefully draft free/discounted meal policies or other fringe benefit policies to avoid liability for claims that those benefits should be included when calculating overtime rates for your non-exempt employees.
The first step is to look to federal law. The FLSA regulations explain that meals furnished to employees as a “convenience to the employer” are excluded from the regular rate of pay. Employers may exclude the value of meals and similar benefits in payroll calculations when (1) the meals are furnished on the employer’s premises, and (2) the meals are furnished for the convenience of the employer. The first element is easy, but what about the second element? This regulation also provides a list of those “convenient” circumstances, such as meals furnished to ensure that employees are available for emergency calls or where business reasons dictate that employers must be kept to short (“30 or 45 minutes”) meal periods. In two different places, the FLSA regulations allow employers and employees to agree to exclude from overtime calculations “the cost of a free daily lunch or other single daily meal furnished to the employees.” Ideally, this agreement should be in writing, but the regulations are silent on this point.
While every situation—and potential solution—will depend on your specific circumstance, don’t let wage and hour fears keep you from handing out those turkeys and opening the company cafeteria. Get good advice in advance on how to structure fringe benefits like these and you can rest easier that the latest en vogue wage and hour lawsuit won’t darken your door this holiday season.