On May 20, 2020, the U.S. Department of Labor (DOL)’s Wage and Hour Division (WHD) announced a final rule granting employers the opportunity to offer bonuses and other incentive-based pay to their employees with varying work hours week-to-week. The rule further clarifies additional payments to employees’ fixed salaries are compatible with usage of the fluctuating workweek method under the Fair Labor Standards Act (FLSA). DM Payroll Solutions further explores this new rule to inform and empower employers when paying their workers bonuses under the wide variety of circumstances COVID-19 presents.

In the new final rule, the DOL:

• Adds language to explicitly state employers can pay employees bonuses, premium payments or other additional pay such as commissions or hazard pay using the fluctuating workweek compensation method. Supplemental payments must be included when calculating the regular rate of pay, unless excludable by FLSA sections 79e)(1)-(8)). Employers now have greater flexibility when providing bonuses or other compensation to their nonexempt employees, eliminating disincentives for employers to pay additional premium payments.
• Addresses the contradictory views expressed by the DOL and courts, which have created legal uncertainty for employers across the country. As many employers attempt to decipher the compatibility of the differing types of supplemental pay for fluctuating workweek workers, this new rule sheds light on it.
• Creates examples for 29 CFR 778.114(b) to properly give context when an employer pays an employee a nightshift differential or a productivity bonus on top of their fixed salary.
• Changes the rule non-substantially so it is easier to read, allowing employers to better understand the fluctuating workweek method. Each of the requirements for using this method are listed in the revised 29 CFR 778.114(a), while duplicate text has been removed from revised 29 CFR 778.114(c). 
• Updates the title of the regulation from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”

A notable aspect of the final rule given the current climate is the flexibility for employers to provide hazard pay to their employees, incentivizing employees to return to work following the COVID-19 crisis. Many employers across the country have recently experienced rejection when asking employees to return to work, whether for personal health concerns or the fact that their unemployment checks are more than their typical salaries. Hazard pay allows employers to not only restore their workforce, but also to promote health and safety measures by creating flexible work schedules which stagger work times while implementing social distancing in the workplace.

As American workers continue to work in the wake of the COVID-19 pandemic, this new rule is an example of the efforts the DOL is putting toward reducing unnecessary regulatory burdens. Employees everywhere can benefit from increased flexibility in their compensation while navigating the aftershock of COVID-19. If you have questions about how this new rule affects your business’s payroll, contact DM Payroll Solutions today.