DOL Announces Final Rule Allowing Employers to Offer Bonuses to Employees with a Fluctuating Workweek
Contact Clara (C.B.) Burns, Charles C. High, Jr., Michael D. McQueen and Gilbert L. Sanchez -
May 20, 2020
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Today, the Department of Labor (“DOL”) announced its final rule that allows employers to pay bonuses to salaried, nonexempt employees whose hours vary from week to week (i.e. fluctuating workweek). The Fair Labor Standards Act (“FLSA”) requires that employers pay their employees overtime at one and one-half times their regular rate of pay for time worked in excess of 40 hours per workweek. An employer may, however, use the fluctuating workweek method if an employee works fluctuating hours from week to week and receives a fixed salary as straight time compensation for whatever hours the employee is called upon to work in a workweek. The employee and employer must agree to use the fluctuating workweek method. An employer using the fluctuating workweek method satisfies the overtime pay requirements of the FLSA if it compensates the employee, in addition to the salary amount, at a rate of least one-half of the regular rate of pay for the hours worked each overtime hour because the employee has received straight time compensation for all hours in the workweek.
After receiving public comments from 36 individuals and organizations, the DOL issued this final rule. The final rule clarifies that payments in addition to an employee’s fixed salary are compatible with the use of the fluctuating workweek method under the FLSA. The final rule further made non-substantive revisions to make the rule easier to read.
The main highlights of the final rule are as follows:
1. Bonus payments, premium payments, and other additional pay are consistent with using the fluctuating workweek method of compensation, and such payment must be included in the calculation of the regular rate;
2. Adopted proposed regulatory language regarding the requirement that an employee must receive a fixed salary that does not vary with the number of hours worked in the workweek, whether few or many, for the fluctuating workweek method to be applied;
3. The rule does not require that an employee’s hours must sometimes fluctuate below forty hours per week, so long as the employee’s hours worked do vary;
4. Employers using the fluctuating workweek method may take occasional disciplinary deductions from an employee’s salary for willful absences or tardiness or for infractions of major work rules, provided that the deductions do not cut into the required minimum wage or overtime compensation;
5. The overall use of the fluctuating workweek method is not invalidated by occasional and unforeseeable workweeks in which the employee’s fixed salary did not provide compensation to the employee at a rate not less than the applicable minimum wage, so long as the fixed salary was reasonably calculated to compensate the employee at or above the applicable minimum wage in the foreseeable circumstances of the employee’s work;
6. Although the parties must have a clear and mutual understanding that the fixed salary is compensation for all hours worked in a workweek, they need not possess such an understanding as to the specific method used to calculate overtime pay;
7. DOL declined to opine in its final rule on the permissibility of using the fluctuating workweek method to retroactively calculate back wages in failed exemption cases; and
8. Changes the title of the regulation from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”
In this final rule the DOL recognized that these revisions were especially important now as workers return to work following the COVID-19 pandemic. In the DOL’s view, the rule will make it easier for employers and employees to agree to unique scheduling arrangements while allowing employees to retain access to bonuses and premiums they would otherwise earn.
The above changes take effect July 19, 2020, so employers need to be ready. They should assess whether a fluctuating workweek or supplemental payments are beneficial as employees return to work. With only 60 days for the rule to take effect, that review process should begin now.
If you have any questions about these regulations or the FLSA, please feel free to contact Kemp Smith’s Labor and Employment Department at 915-533-4424.
