Dive Brief:

• The U.S. Department of Labor's Wage and Hour Division weighed in on an employer's method of re-calculating its employees' regular rate of pay in order to account for the paying out of quarterly and annual nondiscretionary bonuses, in an opinion letter (FLSA2019-7) released July 1.
• Under the terms of a collective bargaining agreement, the employer paid a quarterly bonus based on a fixed percentage of an employee's straight-time wages, as well as an annual qualification bonus. The employer did not include either bonus in calculating employees' regular rate of pay — instead, it retrospectively recalculated the weekly regular rate of pay for the bonus period, taking bonus earnings into account. In recalculating the regular rate, the employer would apply the bonus earnings as an average across the workweeks of the bonus period. The employer would then pay employees the difference in overtime compensation.
• WHD Administrator Cheryl M. Stanton said in the letter that the employer would not need to recalculate the regular rate for each workweek for the quarterly straight-time bonus, because "a bonus of 15 percent of both your straight-time and overtime wages would simultaneously include all overtime compensation due on the bonus as an arithmetic fact." The annual bonus, however, was not tied to straight-time or overtime hours actually worked. For this reason, the employer would have to pay the annual bonus, recalculate the regular rate for each workweek in the bonus period, and then pay the overtime compensation due on the annual bonus.

Dive Insight:

The letter likely won't have a huge impact on employers aside from those who offer a nondiscretionary bonus that is a fixed percentage of straight-time wages, Susan Harthill, partner at Morgan Lewis and former deputy solicitor for national operations at the Department of Labor, told HR Dive in an email.

"If they offer this type of bonus, they may have more flexibility under the Opinion Letter but should consult with employment counsel because the rules are quite technical," Harthill said, "as evidenced by the different application of the rule to the 3 quarterly bonus percentages and the annual bonus described in the letter."

Stanton's letter follows a March 29th DOL Notice of Proposed Rulemaking that would update the rules governing regular rate of pay and allow employers to exclude some items from regular rate calculations, including some discretionary bonuses. Employers are also waiting for the department's latest overtime rule proposal to take effect. That rule would allow employers to include certain nondiscretionary bonuses when calculating whether employees meet the new proposed overtime exemption threshold of $679 per week.