On January 7, 2020, the U.S. Department of Labor issued its first Opinion Letter of the new year – FLSA2020-1. In this instance an employer pays employees a non-discretionary lump sum bonus of $3,000 who complete a 10 week training program and agree to continue training for another 8 weeks. However, the employee will receive the bonus if they complete the 10 weeks and sign up for the 8 week program, but only complete a week. During the 10 weeks, an employee works 40 hours most weeks, but 47 and 48 hours during two of the weeks. The question posed to the DOL was what method should be used to calculate the additional overtime payments due.
29 C.F.R. 778.209(b) allows two methods to compute overtime pay for bonuses that cannot be identified with a particular workweek. In the situation above, the DOL confirmed that since the bonus was for completing a 10 week program, it is appropriate for the employer to allocate the $3,000 lump sum to each of the 10 weeks. Thus, $300 is added to each week, and during the workweeks where the employee worked 7 and 9 hours of overtime, the $300 is added to each weekly wages to determine the new (higher) regular rate, from which the increased overtime rate is then calculated and the additional half-time monies due.
Clear as mud? Let’s break it down and assume the employee makes $10/hr ($5/OT):
Week 1 – 47 hours. 40 x $10 = $400 (straight time pay) + 7 x $15 = $105 (overtime pay). After bonus regular rate becomes ($400+$300)/47 = $14.89. Overtime rate is now $7.45/hr. Employee is owed $7.45-$5 = $2.45/hr x 7 = $17.15 extra.
Week 2 – 49 hours. Paid $400 straight time hours and $135 for OT hours. After bonus regular rate becomes ($400+$300)/49 = $14.29. Overtime rate is now $7.15/hr. Employee is owed $7.15-$5 = $2.15/hr x 9 = $19.35 extra.
In short, it’s nothing earth shattering, but the DOL has stated that it is updating its Field Operations Handbook at 32c03(c) to reflect this as an appropriate method for determining earnings that cannot be identified with a particular workweek.