Applies to: All Employers subject to the FLSA
Effective: August 7, 2020
The U.S. Department of Labor (DOL) recently issued a final rule that allows employers to pay bonuses or other incentive-based pay to salaried, nonexempt employees whose hours vary from week to week. Specifically, employers can pay bonuses, premium payments, or other additional pay, such as commissions and hazard pay, using the fluctuating workweek method of calculating overtime under the Fair Labor Standards Act (FLSA).
First, the final rule confirms that all bonuses and premium payments are compatible with the fluctuating workweek method. This eliminates the distinction between “productivity-based” and “hours-based” supplemental payments. Second, it reiterates the existing rule that bonus and premium payments must be included in the regular rate calculation and overtime calculations, unless otherwise excludable. Third, the DOL explained that an employee’s work hours are not required to fluctuate below 40 hours per week. Employee work hours must only fluctuate from week to week.
The rule also included several examples of how to calculate overtime using the fluctuating workweek method where an employee is paid (1) a nightshift differential, (2) a productivity bonus in addition to a fixed salary, and (3) premium pay for weekend work. Employers should keep in mind that some states have more restrictive overtime requirements than what is permitted under the FLSA, like Alaska, California, New Mexico, and Pennsylvania.
Action Items
- Read the final rule here.
- Prepare to adjust overtime calculations to reflect the new rule.
- Subscribers can call our HR Hotline at (833) 268-5531 or send an email to hrsolved@onedigital.com for further assistance.
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