Bonuses, Premiums and Other Additional Pay Are OK for Fluctuating Workweek, DOL Proposes
Author: Michael Cardman, XpertHR Legal Editor
November 5, 2019
Employers that offer additional pay of any kind - including both productivity-based and hours-based bonuses and premium payments - would be explicitly allowed to use the fluctuating workweek method for calculating overtime under new Fair Labor Standards Act (FLSA) regulations proposed today by the US Department of Labor (DOL).
"For far too long, job creators have faced uncertainty regarding their ability to provide bonus pay for workers with fluctuating workweeks," DOL Wage and Hour Division Administrator Cheryl Stanton said in a statement. "This proposed rule will provide much-needed clarity for job creators who are looking for new ways to better compensate their workers."
Based on federal population data, the DOL estimates there are more than 720,000 workers who could potentially be affected by the new regulations because they :
- Are employed at an establishment covered under the FLSA;
- Are nonexempt from FLSA overtime obligations;
- Work full time at a single job;
- Live in a state that permits the use of the fluctuating workweek method;
- Are paid on a salary basis; and
- Work hours that vary from week to week.
Background
Under the fluctuating workweek method, an employer may pay an employee a fixed amount per week as straight time, regardless of the number of hours worked, if the employee's hours fluctuate from week to week and other important criteria are met. Payment for overtime hours is just one-half times the regular rate, instead of one and one-half times the rate, because the straight-time rate is understood to compensate employees for all the hours they actually worked.
For several decades after the fluctuating workweek method was first introduced in 1940, the DOL neither explicitly permitted nor prohibited employers from paying bonuses and premiums beyond the minimum salary to fluctuating workweek employees.
Then in 2008, under the Bush administration, the DOL attempted to "eliminate confusion" by proposing new regulations that would affirmatively allow employers to pay premiums and other bonuses without invalidating the "fluctuating workweek" method.
But in 2011, when the Obama administration finalized the 2008 proposal, the DOL abandoned the idea. In the preamble to its final rule, it said that allowing employers to pay bonuses and other premium payments while using the fluctuating workweek method "could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees' compensation into bonus and premium payments, potentially resulting in wide disparities in employees' weekly pay depending on the particular hours worked."
Although the DOL's stance articulated in the preamble that bonus and premium payments "are incompatible with the fluctuating workweek method of computing overtime" was never actually enshrined in the final regulation, the DOL says it "appears to have generated further confusion among courts," thereby necessitating clarification.
Public Comment
Employers have until December 5, 2019, to comment on the proposed regulations. Comments may be submitted online under Regulatory Information Number (RIN) 1235-AA31 or by mailing written submissions to:
Division of Regulations, Legislation, and Interpretation
Wage and Hour Division, US Department of Labor, Room S-3502
200 Constitution Avenue NW
Washington, DC 20210
Written submissions must include the name of the agency and the RIN 1235-AA31.
After the comment period ends, the DOL will respond to comments and possibly make revisions before publishing a final rule. This final rule will include a formal effective date.