The dollars that make up an employee’s bonus are worth no less than the amounts they receive for their regular wages or salary or overtime pay. But how an employer accounts for such lump-sum bonuses to ensure compliance with the overtime pay requirements of the Fair Labor Standards Act (FLSA) can be a bit more complicated. To help guide employers in this endeavor, the Department of Labor (DOL) issued an opinion letter on January 7, 2020, that addresses the issue.
As with all such opinion letters, the DOL is responding to a specific inquiry involving a particular fact pattern. Nevertheless, any employer that provides employees with non-discretionary bonuses needs to understand and follow the DOL’s guidance as outlined in the letter.
The letter answered an employer’s question about how to compute overtime pay for bonus earnings that cannot be identified with particular workweeks. In this case, the employer promised employees a $3,000 bonus upon successful completion of ten weeks of training.
Two Different Calculation Methods – Which One Should Employers Use?
Under the FLSA, employers must pay at least one and one-half times the employee’s regular rate for hours worked over 40 in a given workweek. See 29 U.S.C. § 207. The FLSA defines the “regular rate” as “all remuneration for employment paid to, or on behalf of, the employee,” including non-discretionary bonuses.
During the ten-week training period, the employee discussed in the opinion letter worked 40 hours a week for eight weeks but put in seven hours of overtime in each of the other two weeks. Accordingly, the employer was unsure about how to calculate overtime pay since they could not correlate bonus earnings with particular workweeks.
In situations such as this (where the bonus covers more than one workweek), FLSA regulations establish two different methods for determining overtime pay:
- Method 1: If the employer can’t allocate the bonus among the workweeks in proportion to the amount of the bonus the employee actually earned each week, the employer may assume that the employee earned an equal bonus amount each week of the period.
- Method 2: If there are facts which make it inappropriate to assume equal bonus earnings for each workweek, the employer may assume that the employee earned the same amount of bonus each hour of the pay period.
In the circumstances addressed in the opinion letter, the DOL concluded that the employer should use Method 1 and “allocate the lump sum bonus of $3,000 equally to each week of the ten-week training period.” Accordingly, “the employer must then calculate the additional overtime pay due in those workweeks of the ten-week training period that the employee worked more than 40 hours.” In this case, “a $3,000 lump sum bonus divided by 10 weeks equals $300 in bonus allocated per workweek.”
Contact Kreis Enderle With Your Overtime Pay Questions
Employers with questions about how to calculate overtime pay, whether related to bonuses or otherwise, can reach out to the employment law attorneys at Kreis Enderle for answers and guidance. Please contact one of Kreis Enderle’s attorneys at (800) 535-4939 to arrange for a consultation.