On May 20th, 2020, the U.S. Department of Labor’s (DOL’s) Wage and Hour Division (WHD) announced 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. The Final Rule clarifies that payments in addition to the fixed salary are compatible with the use of the fluctuating workweek method under the Fair Labor Standards Act (FLSA).
Overall, the original rule has been revised in a non-substantive way to make it easier to read, so employers will be able to better understand the fluctuating workweek method. The following specific additions and updates are also included:
- Language is added to 29 CFR 778.114(a) to expressly state that employers can pay bonuses, premium payments, or other additional pay, such as commissions and hazard pay, to employees compensated using the fluctuating workweek method of compensation. (The rule also states that such supplemental payments must be included in the calculation of the regular rate of pay unless they are excludable under FLSA sections 7(e)(1)–(8)).
- The Final Rule grants employers greater flexibility to provide bonuses or other additional compensation to nonexempt employees whose hours vary from week to week, and eliminates any disincentive for employers to pay additional bonus or premium payments to such employees.
- The Rule also addresses the different views expressed between the DOL and courts ― and even among courts ― that have created legal uncertainty for employers regarding the compatibility of various types of supplemental pay with the fluctuating workweek method.
- Examples have also been added to the current 29 CFR 778.114(b) to illustrate the principles involved when an employer pays an employee, in addition to a fixed salary, other items such as:
- a nightshift differential; and
- a productivity bonus.
The Final Rule also changes the current title of the regulation from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”
The Notice of Proposed Rulemaking was available for public comment for 30 days. The Department received approximately 36 comments on the proposal, all of which are available to the public at www.regulations.gov. As of the date of this blog post, the Final Rule has not been added to the Federal Register, however, the Rule is scheduled to go into effect 60 days after the date of that publication.