The Department of Labor (DOL) unveiled a final rule that will make it easier for employers to stagger work schedules as businesses start to reopen. The announcement should come as welcome news to employers who are considering more flexible work schedules to promote social distancing and other considerations during the COVID-19 pandemic.
On May 20, the DOL clarified that employers using the fluctuating workweek (FWW) method of calculating overtime can make payments to employees in addition to a fixed salary. The FWW method is one of many ways an employer can satisfy the overtime requirements of the Fair Labor Standards Act (FLSA). The FWW method allows an employee whose hours fluctuate from week to week to be paid a fixed salary as straight-time pay regardless of the number of hours worked. Payment for overtime hours under this method is at one-half times the regular rate instead of the standard one and one-half times the regular rate because the straight-time rate already includes compensation for all hours worked.
One of the requirements for using the FWW method is the payment to employees of a fixed salary that does not vary with the number of hours worked. Courts and the DOL have expressed differing views as to whether employers can make payments to employees in addition to the requisite fixed salary with the FWW method. These divergent views have included, among other things, unqualified prohibitions of such additional payments and the permissibility of productivity-based, but not hours-based, additional payments. The uncertainty with respect to the permissibility of payments in addition to the fixed salary was further compounded by a statement made by the DOL to the effect that all straight-time bonuses and premium payments were incompatible with the FWW method.
The DOL resolved the differing views on this issue. The final rule says payments in addition to the fixed salary are compatible with the FWW method. Also, it does not matter whether such payments are productivity-based or hours-based. The rule adds specific language to the FWW regulation to the effect that “[p]ayment of any bonuses, premium payments, commissions, hazard pay, and additional pay of any kind is compatible with the fluctuating workweek method of overtime payment.” The DOL makes it clear that any additional payments must be included when calculating the regular rate for the applicable workweek unless such payments are excludable from such calculation under the FLSA.
The clarification makes it easier for employers to use the FWW method and better use flexible work schedules. The rule is all the more significant now as employees begin returning to work following the COVID-19 pandemic and employers consider more flexible work schedules to promote social distancing and other considerations. Currently, only approximately 698,000 workers are paid using the FWW method, which represents about 0.4% of the workforce. This number will likely increase as a result of this rule.
The final rule goes into effect 60 days after the May 20 release. The text of the final rule can be found on the DOL website.
On May 18, the DOL simplified the retail or service establishment exemption to the overtime requirements of the FLSA. In the rule, the DOL withdrew two provisions from the regulations – one which listed industries the DOL viewed as having “no retail concept,” making them ineligible for the exemption, and the other that listed industries that “may be recognized as retail,” and were potentially eligible for the exemption. The entirety of this final rule can be found on the Federal Register website.
Please contact Jessica Huffman or Phelps’ Labor and Employment team if you have any questions or need compliance advice and guidance. For more information related to COVID-19, please also see Phelps’ COVID-19: Client Resource Portal.