DOL Issues Opinion Letters on Nondiscretionary Bonuses, Overtime Exemption Standards, and Rounding Time Under the FLSA

The U.S. Department of Labor (DOL) recently announced new opinion letters from the Department’s Wage and Hour Division (WHD) on calculating overtime pay for nondiscretionary bonuses and permissible rounding practices under the Fair Labor Standards Act (FLSA).  Opinion letters are responses from the WHD to submitted queries, are primarily informative in nature, and are published by the WHD to clarify or interpret existing regulations.

FLSA2019-7: How should employers include nondiscretionary bonuses in the regular rate?

An employee inquired if the FLSA requires employers to include a nondiscretionary bonus, that is a fixed percentage of straight-time and overtime wages received over multiple workweeks, in the calculation of the employee’s regular rate of pay at the end of each workweek. There, an employer was retroactively recalculating the weekly regular rate of pay based on the quarterly or annually paid bonus, and then paying the difference in overtime wages. Instead of using the actual bonus amount in a given workweek, the employer was averaging the bonus across the workweeks of the quarterly or annual bonus period when making the recalculation.

Ultimately, the DOL stated that the FLSA requires nondiscretionary bonuses be factored into the regular rate of pay calculation, and allows for simultaneous payment of overtime due on the bonus, for bonuses that are a percentage of straight time and overtime wages and bonuses that are a percentage of total compensation. (Note that the DOL disapproved of jurisdictions, like California, that had inconsistent laws.) Interestingly, neither type of bonus requires recalculation of the employee’s regular rate if the bonus simultaneously pays the overtime due on the bonus and the employer separately pays overtime due on other compensation included in the regular rate. However, the bonus must be allocated among the workweeks in proportion to the amount of the bonus actually earned each week, unless it is impossible, in which case the bonus can then be averaged across the applicable workweeks.

FLSA2019-8: What level of duty is required to qualify for the highly compensated exemption under the FLSA?

Employees qualify for the highly compensated exemption if the primary duty includes office or non-manual work, the employee is paid at least $100,000 annually, and the employee “customarily and regularly” performs at least one of the exempt duties of an executive, administrative, or professional employee. The DOL defined “customarily and regularly” to be “more than occasionally,” not the “primary duty” as is required for the administrative exemption. Further, the DOL accepted the employer’s description of “major duties and responsibilities” as being customarily and regularly performed.

FLSA2019-9: Can Federal Contractors Round Employees’ Time Worked?

A federal contractor employer’s timekeeping software rounded time based on the one-thousandth decimal place, either up or down to the one-hundredth decimal place. The DOL stated that the federal Service Contract Act (SCA) allows employers to round time consistent with FLSA regulations. The FLSA allows employers to round time provided that it (1) is neutral on its face and (2) “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” Generally, the DOL’s policy has been to allow rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour, as long as employees are compensated on average for all time they actually work. Ultimately, the DOL stated that the employer’s calculation method complies with the FLSA and SCA.

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