If you’re like me, you’re sick of hearing the phrase “new year, new me” at the beginning of every new year. A decade of hearing “new year, new me” and witnessing no change has made me somewhat of a cynic. However, the Department of Labor (“DOL”) has given me new hope with their commitment to remain the same this new year. Here’s what I mean. Last week, the DOL issued two new opinion letters that provide some clarity to employers in determining (1) the proper overtime rate of pay for non-discretionary, multi-week bonuses; and (2) whether certain per-project payments are sufficient to satisfy salary basis test required for the white-collar exemption under the FLSA (technically, the DOL issued three opinion letters, but only the two I just mentioned truly matter). Brace yourself, this post is going to be a bit longer than usual.
- Overtime and Multi-Week Bonuses
This first letter addresses a $3,000 bonus that is used as an inducement for employees to complete a 10-week training program and to agree to an additional eight weeks of training. We all know that these types of bonuses should be included in the regular rate of pay. Problem solved, right? Wrong. The employer’s question was a little more specific. The employer wanted to know how the bonus should be included in the regular rate.
The employee in this opinion letter worked 40 hours during 8 of the 10 weeks. In the other weeks, the employee worked 47 hours in one and 48 hours in the other. The DOL concluded that any bonus earnings that cannot be identified with particular workweeks should be allocated equally across the weeks.
The opinion letter used the following example:
The $3,000 would be divided into each of the 10 weeks, for a weekly bonus of $300. In the case of the two overtime weeks, the $300 would be divided by hours worked, and the half-time rate would be paid for the overtime hours. If you’re like me, all of those words regarding overtime meant nothing to you and you have to actually see it.
Here you go:
$300/47 = $6.38; $6.38 * 0.5 * 7 = $22.34 in additional overtime due in 47 hour week
$300/48 = $6.25; $6.25 * 0.5 * 8 = $25.00 in additional overtime due in 48 hour week
$47.34 in additional overtime would be due.
If you want to see for yourself, the full opinion letter can be found here. Since we’re on the subject of regular rate of pay, this is a reminder that the Wage & Hour Division’s final rule on regular rate of pay is effective January 15, 2020.
- Salary Basis and Per-Project Payments
In this letter, an employer requested guidance on whether an employee who is paid a pre-determined amount for a project, in equal bi-weekly amounts, is paid on a salary basis, and whether changes to the total project amount of additional payments alter the salary basis status. Essentially, the employer appeared to be asking whether the employer could prospectively change the rate of pay for a salaried exempt employee while maintaining that employee’s exempt status. I know you must be sitting at the edge of your chair, biting your fingernails waiting for the answer to this question. Well, to save you the expense, the answer is essentially “yes.”
The following example was used in the opinion letter:
The employee is paid a set amount to complete projects at her employer’s customers’ locations, and the employee can be assigned to work on more than one project at a time. The employee is assigned to two projects:
Project 1: a 40-week project for which she will be compensated $80,000, paid in 20 bi-weekly installments of $4,000, regardless of the number of hours worked in any week or the quality of work performed.
Project 2: an 8-week project for which she will be compensated an additional $6,000, paid in 4 bi-weekly installments of $1,500.
During the course of Project 1, employee is assigned to Project 2. For those 8 weeks, her bi-weekly compensation will be $5,500 ($4,000 + $1,500).
The DOL determined that the payment for Project 1 satisfied the salary basis requirements, because the bi-weekly payments to the employee do not vary week to week or month to month based on the number of hours worked or the quality of the work performed. As it relates to Project 2, the DOL explained that receiving compensation for this project, in addition to the regular salary earned for Project 1, does not alter the determination that the employee is paid on a salary basis. Why? Project 2 is considered extra compensation and an employer may provide an exempt employee with additional compensation without losing their exempt status.
Finally, the DOL was a bit more thorough with this opinion letter and actually addressed multiple scenarios that it referred to as “unusual.” These scenarios included situations when an employee’s pay might increase or decrease due to prospective changes in the project(s) negotiated between the employee and its customer. The DOL determined that prospective reductions in salary do not defeat the salary basis test unless the revisions were so frequent that the compensation would rarely be the same from pay period to pay period.
The full opinion letter can be found here.
None of the above decisions by the DOL should come as a surprise. Both letters follow long established DOL precedent. Nevertheless, you should still contact your local labor and employment attorney before implementing or changing any of the above practices. All in all, in an area of law (and world) that is constantly changing, it is nice to see the DOL remaining the same … at least for now.