I like how the USDOL is moving along with proposals and plans that assist employers in running their businesses, compensating their employees fairly, and, importantly, not running afoul of the Fair Labor Standards Act (FLSA).  The agency has now proposed a rule that would allow employers to use the so-called “fluctuating workweek” formula for overtime computation to account for the bonuses of the workers.

The agency has issued a notice of proposed rulemaking on this matter.  If implemented, it would do away with an Obama-implemented regulation that tried to stop employers from transferring, in essence, a big chunk of employee base salaries into bonuses.  There will be thirty days for comment, after which the agency will issue its decision, accepting or rejecting the comments and the suggestions therein.

Cheryl Stanton, the Administrator, thought highly of the fluctuating workweek initiative.  She asserted that regulations have resulted in employers’ “uncertainty regarding their ability to provide bonus pay for workers with fluctuating workweeks.”  She added that “this proposed rule will provide much-needed clarity for job creators who are looking for new ways to better compensate their workers.”

This method of computing overtime allows for basically a half-time method of calculation for each week, depending on the number of hours worked, which may fluctuate.  It allows employers to pay overtime hours at “reduced” rates provided that the employees receive a base salary, without regard to the number of hours worked in that particular week.  For example, an employee salaried at $500 per week and who worked forty-five (45) hours would receive the base salary of $500 plus five hours at half their regular rate for that week (the computations yields $11.11) for total pay of $527.78.

Courts administering the fluctuating workweek structure have disagreed about whether employers should be allowed to pay workers overtime, the DOL said in its proposed rule.  The agency stated that it is no longer concerned that employers will seek to “nickel and dime” their employees by using this method to dilute bonuses.  The agency observed that one study opined that bonuses make up “a relatively small portion” of total pay for workers.  Thus, the recommendation from the DOL was to permit employers to pay bonuses as long as they became a component of the computation of the regular rate.

The Takeaway

This is good news for employers.  It clears things up and allows employers to use a favorable method of computing overtime for bonus eligible employees at the same time complying with the FLSA.  I believe most States will defer to this interpretation.

And courts will as well…