In Silicon Beach and throughout Los Angeles, offering meals to employees is becoming the norm. And not just any meals, but gourmet meals that cater to carnivores and vegans alike. While employees are thrilled, employers may be starting to look at their bottom line and question how long they can afford such a luxury. Perhaps one way to do so is to count the cost of these lunches as part of employees’ compensation?
In short, the answer is Yes, that can be done. However, in the world of wage and hour law, nothing is black and white. Let’s delve into the grey areas so that employers can be confident knowing that they are not putting themselves at risk for potential wage and hour lawsuits.
Calculating the “Reasonable Cost” of Meals
The Fair Labor Standards Act (FLSA) does allow for employers to count the “reasonable cost” of meals provided to an employee as part of the employee’s wages for purposes of complying with the FLSA’s minimum wage requirements. However, the “reasonable” part is where Los Angeles employers often get in trouble. In this situation, “reasonable cost” means the employer’s cost, not the retail price of the meal.
According to Section 30c06 of the DOL’s Field Operations Handbook:
(1) The “reasonable cost” of meals furnished by a food service establishment to its employees includes only the actual cost to the employer of the food, its preparation, and related supplies. Salary or wage costs, as distinguished from material or supply costs, may be claimed only to the extent that such salary or wage costs are shown to be directly attributable to the cost of providing meals to employees. If food preparation/serving employees of a food service establishment would be paid the same rate of pay even if meals were not provided to the employees of the establishment, their wage costs cannot be included in determining reasonable cost. Conversely, if it were necessary to hire extra personnel or pay higher wages to existing employees in order for them to assist in furnishing meals to employees, such extra expense would be a legitimate cost which could be included in determining the “reasonable cost” of meals.
(2) Costs which a food service employer incurs regardless of whether the employees were furnished meals may not be included in determining “reasonable cost.” In a food service establishment, items such as employee insurance, payroll taxes, menus, decorations, other operating supplies, laundry, telephone, maintenance services, advertising and promotion, building and equipment rental, licenses and taxes, insurance and deprecation, franchise cost, and general administrative costs are a part of the overall cost of the operation and of the employer’s business establishment which may not be charged to the reasonable cost of employees’ meals.
This means that employers can take credit for the cost of the food served to hourly employees, but cannot pass on overhead or the desire to make a profit to the employee.
Meals “Furnished” To Employees
To lawfully take credit for the cost of a meal “furnished to an employee,” the employee must actually receive the meal and he cannot be forced to do so. His acceptance of the meal must be “voluntary and un-coerced”.
Meals and Overtime
What about that overtime calculation? It is crucial that employers remember to consider the cost of the meals furnished to the employee as part of his compensation. Remember, qualifying employees are entitled to be paid at least the minimum wage for all hours worked, plus an additional 50% of the minimum wage for any overtime hours. If an employer elects to pay part or all of the employee’s wages in meals, the employer must remember to factor the value of the meal into the overtime calculation.
When an employer takes deductions from employee pay for the cost of meals, “the employee’s ‘regular rate’ is the same as it would have been if the occasion for the deduction had not arisen.” 29 CFR § 778.304(b). If an employer chooses not to deduct the cost of meals from the employee’s pay, certain instances require that the employer include that cost as part of the employee’s “regular rate” when calculating overtime. See 29 CFR § 778.116, where compensation must include not only cash wages, but food and lodging furnished to an employee. At the same time, the regulations do expressly permit an employer to reach an “agreement or understanding” with an employee to exclude the cost of a single meal per day from the employee’s regular rate of pay. 29 CFR §548.3(d), 29 CFR § 548.304. Of course, the employer should document this agreement and have both parties sign. In the absence of such an agreement, or if the employer provides the employee with more than one free meal per day, the employer may have to pay the employee additional overtime based upon the cost of the “free” meals.
Insights for Employers
Providing meals to employees can be a huge perk, one that allows you to position your company in a manner to attract top talent. Additionally, providing employees with these meals is not illegal. As with any situation involving employees, employers need to pay attention to how those meals may factor into employee pay in order to avoid potential wage and overtime claims down the road.
For the employers who wish to take credit for meals furnished to employees, they need to calculate and keep accurate, detailed records of their costs. And for those employers who do not wish to factor regularly-provided free meals into overtime pay, a written agreement that clearly states this understanding is crucial.
For more information on how to avoid potential wage and hour lawsuits, contact experienced business attorney Drew E. Pomerance today.