On May 20, 2020, the U.S. Department of Labor (DOL) released a final rule allowing employers to pay nonexempt employees whose hours vary from week to week, bonuses or other forms of incentive-based pay.  This rule comes to fruition during the current COVID-19 pandemic, helping those who are continuing to work or returning to work.  The DOL specified that this new rule, “will allow employers and employees to better utilize flexible work schedules.”  Further, the DOL mentioned in relevant part, “as workers return to work following the COVID-19 pandemic… some employers are likely to promote social distancing in the workplace by having their employees adopt variable work schedules, possibly staggering their start and end times for the day.  This rule will make it easier for employers and employees to agree to unique scheduling arrangements while allowing employees to regain access to the bonuses and premiums they would otherwise earn.”

The rule amends 29 C.F.R. § 778.114 (Section 114) under the Fair Labor Standards Act (FLSA) and adds language expressly stating the employers are able to pay bonuses, premium payment, or other additional pay, such as commission and hazard pay, to those employees compensated using the fluctuating workweek method of compensation.  The rule grants employers greater flexibility to compensate nonexempt employees, with varying workweek hours.

In previous years, Section 114 required:

1. hours that fluctuate from week to week;
2. a fixed salary that does not vary with the number of hours worked;
3. a salary sufficiently large to cover the minimum wage; and
4. a clear mutual understanding between employer and employee that the employer will pay the fixed salary regardless of the number of hours worked.

If the above requirements were met, the employer computed the regular rate by dividing the weekly salary by the total number of hours worked that week, and satisfied its overtime pay obligation by paying a premium equal to half that amount for each overtime hour worked.

This new rule clarifies the long-standing ambiguities about whether additional compensation paid to the employee was compatible with the fluctuating workweek method of calculating overtime pay.  The DOL stated in the preamble to this new rule that the regulation does not require that an employee’s hours must sometimes fluctuate below forty hours per week, so long as the employee’s hours worked do vary.

Keep in mind, this method of pay is not permitted in states that prohibit a nonexempt employee’s salary from compensating more than forty (40) hours of work per week.  These states include; Pennsylvania, California, Alaska, and New Mexico.  Employers are urged to check and make sure they are in compliance not only with federal law, but state and local law as well.

If you have any questions or concerns related to these topics, please contact one of the attorneys in our Employment Law Group at 1-888-488-2638.