Proposed Rule Would Allow Bonuses for Fluctuating Workweek Employees

November 15, 2019

The U.S. Department of Labor announced a proposed rule that would clarify the regulation for computing overtime compensation for salaried, non-exempt employees who work hours that vary each week (i.e., a fluctuating workweek), and allow employers to pay those employees bonuses.

The fluctuating workweek method for paying overtime allows employers to pay overtime hours at diminishing rates as long as they pay workers a minimum base salary, regardless of how many hours they work.

  • For example, a nonexempt employee (under the FLSA) who is paid a base salary of $600 per week would earn that sum even if they work 35 hours in a week.  If they worked 45 hours the following week, they would receive their base salary ($600) plus five hours at half their regular rate for that week—$13.33 ($600/45)—for a total pay of $633.33 ($600 + (13.33/2)*5).

The proposed rule would reverse a 2011 Obama-era regulation that prohibited employers from using the “fluctuating workweek” overtime formula for paying bonuses to their employees.

"This proposal offers more options for bonus pay and exemplifies the U.S. Department of Labor's commitment to reduce unnecessary burdens in order to benefit America's workers," said Labor Secretary Eugene Scalia.

Takeaway:  Clarifying the option for calculating fluctuating workweek overtime pay will reduce litigation risk and allowing bonus payments will encourage more businesses to use the method.