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August 26, 2005
Dear Name*
This is in response to your request for an opinion concerning whether your client’s proposed method of paying professional accountants satisfies the “fee basis” form of compensation under 29 CFR §541.605.
You request that your client’s (“Company”) proposed method of compensation be evaluated in light of
the final rule implementing the minimum wage and overtime pay exemptions under
section 13(a)(1) of the Fair Labor Standards Act (FLSA). This section provides
a complete minimum wage and overtime pay exemption for any employee employed in
a bona fide executive, administrative, or professional capacity as those terms
are defined in the final rules at 29 CFR Part 541 that took effect on August
23, 2004. An employee may qualify for exemption as a bona fide professional
employee if all the pertinent tests relating to duty, salary level and salary
or fee basis are met.
In your case, we do not believe that the Company’s method of payment qualifies as payment on a fee
basis.
You state that the Company outsources accountants to provide accounting and financial information
management services, primarily to small and medium sized businesses. A
significant portion of the services provided by the accountants is performed in
their homes, where they process client financial transactions and maintain
accounting records via computer. For discussion purposes, you ask us to assume
that the Company’s accountants satisfy the “duties test” for the learned
professional exemption.
The Company charges its clients primarily on a “per transaction” or “flat fee” basis. That is, a flat
fee is charged for each entry into the client’s books (transaction), such as,
for example, electronically entering a vendor bill; generating a check for bill
payment to a vendor; posting payroll entries; entering an invoice or a customer
payment, etc. Clients are charged a base flat fee for services, which includes
visits to the customer to pick up required documentation, reconciling balance
sheet accounts, and maintaining accounting systems. Additional flat fees are
charged for extra services, such as generating printed reports and making
additional visits to the client.
The Company also charges clients in hourly increments for certain services that cannot be defined on a
transaction basis. In a conversation on March 11, 2005 with a member of the Wage and Hour Division staff, you stated that with respect
to “hourly” services to the client, such as setting up the computer system or meeting with the client to review certain invoices, the accountant would be paid a percentage of what is charged to the client. The clients in this situation are charged in six-minute increments. You further state that accountants would be paid additional amounts on an hourly basis for certain “non-billable” activities, normally de minimis, such as attendance at
training sessions and staff meetings.
The Company desires to pay its accountants a percentage of what is billed to clients for actual work
performed by the accountants for the clients. It would pay an accountant from
30% to 40% of what is billed to the client for flat fee services, depending on
the skill level and experience of the accountant. For example, assume the
Company charges $2.00 per transaction for entries into the client’s accounting
system. The accountant would then be paid between $.60 to $.80 for each such
transaction. Similarly, assume the client is charged a flat fee of $75.00 for
weekly base services, including office visits to pick up necessary
documentation (invoices, receipts, etc.). The accountant would be paid a
designated percentage of the fee charged to the client, in the example given,
between 30% to 40% of the $75.00 fee charged to the client, regardless of the
time it took to perform the base services.
The weekly compensation paid to accountants under this system would vary depending upon the amount of
billable transactions and services each accountant performs each week.
However, you state that, for purposes of this discussion, the requirements of
29 CFR §541.605(b) would be met as the resulting pay in every case would result
in a rate being paid to accountants equal to no less than $455 per week, if the
accountant worked a 40 hour week.
With regard to the “uniqueness” factor under section 541.605(a), you ask us to assume the
following facts:
- The Company employs business accounting software, available for licensing on the open market to perform
services to clients;
- Entries are made and posted by the accountants in accordance with general ledger accounting principles, with
which they must be familiar;
- Many transactions involve entries
of a repetitive but not necessarily identical nature. For example, there will
be certain bills and invoices that may be entered each week, month, etc. The
amounts vary from week to week or month to month, but the general ledger
account in which the entry is made does not change. However, the accountant
must exercise professional judgment in the management of a client’s accounting
system, in assuring that each entry is made correctly in the appropriate
category, in assuring that the client’s internal and external reporting
requirements are met, in advising clients regarding the accounting treatment of
expenses, revenues, receipts, payments, etc.
Below is a discussion of the
“fee basis” form of payment under the regulations, which is followed by an
analysis of whether the Company’s proposed method of compensation discussed
above can be considered as payment on a “fee basis” within the meaning of the
regulations.
As stated in section 541.605(a), “[a]dministrative and professional employees may be paid on a fee
basis, rather than on a salary basis. An employee will be considered to be
paid on a ‘fee basis’ within the meaning of these regulations if the employee
is paid an agreed sum for a single job regardless of the time required for its
completion. These payments resemble piecework payments with the important
distinction that generally a ‘fee’ is paid for the kind of job that is unique
rather than for a series of jobs repeated an indefinite number of times and for
which payment on an identical basis is made over and over again. Payments
based on the number of hours or days worked and not on the accomplishment of a
given single task are not considered payments on a fee basis.”
After reviewing the proposed
pay plan described above, we believe that the “per transaction” or “flat fee”
basis of compensation, from which an accountant would primarily derive his or
her pay based on a percentage, more resembles piecework payments rather than
payments on a “fee basis” under the regulations. It appears that an
accountant, for example, paid $.60 to $.80 for each entry he or she makes to
the client’s accounting system would be performing a series of jobs repeated an
indefinite number of times for which identical payments would be made over and
over again. Moreover, the history of the fee basis regulation, as there were
no substantive changes made to the previous rule, demonstrates that the fee
basis of payment does not involve a predetermined amount paid regularly over a
long period of time. See 69 FR 22122, 22184 (April 23, 2004); Opinion
Letter dated October 19, 1999(copy enclosed). The fact that the accountants in
question would be paid the same predetermined sum for each transaction is a
strong indication that such transactions are not unique.Id.Opinion Letter dated April 15, 1982 (copy enclosed). Accordingly, it is our opinion that payment based on a “per transaction” or “flat fee” basis as discussed above is not a “fee basis”
arrangement that satisfies the regulations.
We also believe that the
“hourly” services basis of compensation, from which an accountant would in part
also derive his or her pay based on a percentage, cannot be considered payment
on a “fee basis” under the regulations. Such compensation would be based on
the amount of time worked and not on the accomplishment of a given single task
regardless of the time required for its completion as the rule requires.
Therefore, it is our opinion that such accountant would not be compensated on a
“fee basis” within the meaning of 29 CFR §541.605(a). Thus, an accountant who
meets the duties test under the learned professional exemption would
nevertheless fail to qualify for the exemption if compensated in the manner
discussed above. Even if the first aspect of the pay plan were modified so
that it could be determined to be a proper “fee basis” under the regulations,
the plan nevertheless would not qualify under these same regulations because it
is combined with an hourly pay component. As explained in the preamble to the
final rule, “[w]e continue to believe that payment of a fee is best understood
to preclude payment of additional sums based on the number of days or hours
worked.” See 69 Fed. Reg. at 22184; Elwell v. University Hospitals Home
Care Services, 276 F.3d 832 (6th Cir. 2002).
This opinion is based exclusively on the facts and circumstances described in your request and is
given on the basis of your representation, express or implied, that you have
provided a full and fair description of all the facts and circumstances that
would be pertinent to our consideration of the question presented. Existence
of any other factual or historical background not contained in your request
might require a different conclusion than the one expressed herein. You have
represented that this opinion is not sought by a party to a pending private
litigation concerning the issue addressed herein. You have also represented
that this opinion is not sought in connection with an investigation or
litigation between a client or firm and the Wage and Hour Division or the
Department of Labor. This opinion letter is issued as an official ruling of
the Wage and Hour Division for purposes of the Portal-to Portal Act, 29 U.S.C.
259. See 29 C.F.R. 790.17(d), 790.19; Hultgren v.
County of Lancaster, Nebraska, 913 F.2d 498, 507 (8th Cir. 1990).
We trust that the above is responsive to your inquiry.
Sincerely,
Alfred B. Robinson, Jr.
Deputy Administrator
Enclosures: Opinion Letters dated October 19, 1999 and April 15, 1982
*Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C. 552 (b)(7).
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