The USDOL has been pretty busy lately issuing new rules and interpretations about FLSA issues, including vague, nuanced issues like the inclusion (or not) of bonuses in the regular rate and the circumstances under which employers can utilize bonuses. The agency has again issued such a clarification allowing employers to provide bonuses (and hazard pay) to workers paid on a “fluctuating workweek” method. The agency explains that these changes will give employers new freedom to pay workers in the midst of the current COVID-19 situation.

The rule specifically allows employers to provide employees with bonuses, hazard pay and commissions in addition to their fixed weekly salaries, finding that these kinds of payments are “compatible” with the fluctuating workweek (FWW) method of computing overtime. Significantly, the rule also makes clear that these added monies must be included in the calculation of the regular rate of pay when overtime is computed. Cheryl Stanton, the DOL Administrator of the Wage Hour Division, advised that this rule gives employers needed “flexibility” as they cope with the numerous problems and issues engendered by the COVID-19 situation. Such flexibility would be entailed in the (anticipated) staggered shifts that employers may have to adopt upon re-opening their businesses, keeping in mind social distancing protocols.

The FWW method of payment provides that employees are entitled to half-time overtime, instead of “traditional” time and one-half, if they are on a fixed salary for all hours worked, so the regular rate for such a FWW employee will fluctuate from week to week, depending on the number of hours worked. Under the new rule, as the agency explained it will be “easier for employers and employees to agree to unique scheduling arrangements while allowing employees to retain access to the bonuses and premiums they would otherwise earn.” The rule also negates a 2011 Obama DOL regulation which was intended to prevent employers from not fully compensating these FWW workers by moving most of the workers’ salaries into bonus payments.

Naturally, there is opposition to the regulation. Several state Attorneys General have issued comments asserting that the new rule “runs counter to the remedial purpose of the FLSA.” They are concerned that “the proposed rule will create incentives for employers to reduce fixed weekly salaries while increasing weekly work schedules and to shift a large portion of wages into bonus and premium payments to reduce costs.” They warn that “these incentives will likely lead employers to increase their use of the FWW rule and in doing so, will fail to comply with local laws that either do not allow the FWW rule or allow it only within the narrow bounds of the precedent the department now seeks to overturn.”

The agency countered by noting that “while the overtime premium per hour decreases as hours increase, the employer must still pay an overtime premium that is designed to discourage overtime work and spread employment, and the total amount of overtime premium an employer owes continues to increase as hours increase. It further observed that “the department notes that the payment of hours-based bonuses to employees compensated under the fluctuating workweek method — which this final rule clarifies is permitted — may diminish or even eliminate the inverse relationship between hours worked and the regular rate that commenters find objectionable.”

The Takeaway

The Administrator has also stated that the rule will give clarity for employers who are “looking for new ways to better compensate their workers” but have been unsure whether they could provide bonuses to FWW workers. The rule also eliminates (to a large extent) the uncertainty faced by employers who would only know if they were right or wrong about whether bonuses could be given if they were sued in court and won. Or lost.

Clarity is a good thing and, in these difficult times, most welcome…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit Fox Rothschild’s Coronavirus Resource page.