The U.S. Department of Labor published its revised rule, Fluctuating Workweek Method of Computing Overtime in the Federal Register on June 8, 2020. This final rule, effective August 7, 2020, clarifies, under certain circumstances, employers can use the Fair Labor Standard Act’s fluctuating workweek method to compute overtime for nonexempt employees who are paid bonuses, hazard pay, and other incentive-based payments and who have varying work hours from week to week.

The DOL addressed several key issues and details related to incentive pay being provided to non-exempt salaried employees in its final rule, including:

• The employee and employer must have a clear and mutual understanding that the fixed salary is compensation, apart from overtime premiums, bonuses, and other additional pay.
• The DOL added language that allows employers to pay premium payments, bonuses, hazard pay, commissions, and other additional pay to employees who receive compensation based on the fluctuating workweek method. This language has been added to 29 CFR 778.114(a).
  • This rule also outlines that any supplemental payments made must be included in the regular rate calculation unless they fall under FLSA sections 7(e)(1)-(8) and the related exclusions.
• The DOL added examples that illustrate situations when employers provide additional compensation to employees. Examples include overtime pay, a bonus and a night shift pay differential, in addition to the fixed salary paid to the non-exempt employee. 29 CFR 778.114(b)(1)-(3)

In its notice, the DOL stated the final rule provides flexibility to employers who want to provide additional compensation, including bonuses, to employees with varying work hours without being disincentivized to do so. For additional information, please review the final rule issued by the Department of Labor.

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