November 25, 2019

On November 5, the Department of Labor (“DOL”) published a proposed rule updating its regulations governing how to compute overtime compensation for salaried, nonexempt employees who work hours that vary or fluctuate each week. Specifically, DOL’s proposed rule would permit employers to pay bonuses and other incentive-based compensation to employees under the fluctuating workweek method.

Under the Fair Labor Standards Act (“FLSA”), a worker with fixed hours is guaranteed a minimum wage for all hours worked and 1.5 times that rate for overtime (i.e., hours worked beyond the traditional 40 hours). Different from traditional overtime compensation, however, a worker with a fluctuating workweek is compensated for overtime at a rate of 0.5 times his base rate for each hour worked beyond 40 for a particular week—and the base (or regular) rate must be calculated separately each week depending on the number of hours the employee worked.

Courts have differed in their interpretation as to whether FLSA allows for bonuses and other incentive-based pay for employees using the fluctuating workweek method. As such, the proposed rule would clarify that such payments must be included in the calculation of the regular rate. The proposal also provides examples of how to calculate overtime for fluctuating workweek employees, which DOL believes will help employers ensure compliance.

Comments on the proposal are due December 5, 2019.