Thanks to a proposed rule by the Department of Labor, employers may soon have greater clarity when it comes to overtime calculations for workers paid using the fluctuating workweek method.
On Nov. 4, the DOL proposed a new rule to clarify that bonuses and additional pay of any type are compatible with the fluctuating workweek method of employee compensation. Under the proposal, which is in the midst of a 30-day public comment period, employers will be able to provide bonuses, premiums, or other additional pay to employees without fear that doing so might invalidate the fluctuating workweek method, so long as the additional payments are included in calculating employees’ regular rate of pay. According to the DOL, the proposed rule will alleviate the confusion and burdens created by a 2011 Final Rule, which indicated that bonuses and premium payments were incompatible with the fluctuating workweek method.
Using the fluctuating workweek method, an employer may pay a nonexempt employee a fixed salary even though that employee works hours that fluctuate above or below 40 each workweek. To use this method, the employee’s hours must fluctuate week to week, and the employer must pay the employee a fixed salary as straight time compensation for all hours worked in a given workweek, regardless of whether above or below 40 hours. Because the fixed salary is straight time pay for all hours worked, the employer satisfies the FLSA’s overtime pay requirements by paying the employee at a rate of at least one-half of the regular rate of pay for all hours she works above 40 in a given workweek. Due to the fluctuating nature of the employee’s hours, however, the employer must calculate the employee’s regular rate each week.
Because confusion developed in the courts over whether certain types of additional pay (i.e. bonuses, premiums, etc.) were compatible with the fixed salary requirement of the fluctuating workweek method, the DOL proposed a rule in 2008 to clarify that such payments would not invalidate the fluctuating workweek method, if included in the regular rate calculation. However, this was only a proposal, and in 2011, the DOL issued a Final Rule that did not adopt the clarifying language proposed in 2008. Instead, the DOL stated that it was sticking to the “current rule,” which the 2011 Final Rule interpreted as prohibiting bonus and premium payments as being incompatible with the fluctuating workweek method. In the wake of the 2011 Final Rule, a dichotomy has developed in the courts between “productivity-based” supplemental payments and “hours-based” supplemental payments, the former having been found compatible with the fluctuating workweek method while the latter have not.
Citing the confusion and administrative burden created by this dichotomy, the DOL proposed the new rule last week to clarify the treatment of all forms of additional pay under the fluctuating workweek method. As described by the DOL, “additional pay of any kind on top of the fixed salary is compatible with the fluctuating workweek method,” and the reference to “additional pay of any kind” is intended “to prevent disagreements over whether a payment is ‘bonus’ or ‘premium.’” As a result, an employer may pay a nonexempt employee bonuses and premiums without invalidating the fluctuating workweek method, so long as the employer includes such payments in calculating the employee’s regular rate. This proposed rule not only brings more certainty to employers already using the fluctuating workweek method, but it should also cause other employers whose employees’ weekly hours fluctuate above or below 40 to view the fluctuating workweek method as a more viable option for compensating those employees. Be sure to check back here to see when the proposed rule is officially adopted by the DOL and whether there are any significant changes to the new rule as currently proposed.