FLSA2020-1 : Addressing calculating overtime pay for a non-discretionary lump sum bonus paid at the end of a multi-week training period.
January 7, 2020
Today’s post is about one of the first DOL WHD opinion letters of 2020 and is about the method for calculating overtime pay for a nondiscretionary lump sum bonus under the Fair Labor Standards Act (FLSA). As always when the DOL WHD issues an opinion letter, it is based exclusively on the facts provided by the entity asking for clarification.
In this case, the question is regarding a lump sum payment that will be paid to employees if they successfully complete a training program. Employees are notified in advance that they will receive the bonus if they complete the training and agree to continue an additional number of weeks of training. Per the employer, the bonus is nondiscretionary.
The question asked is which method of computing overtime pay for bonus earnings that cannot be identified with particular workweeks noted in 29 C.F.R. § 778.209(b) should be used to calculate the overtime payments that result from the nondiscretionary lump sum bonus.
DOL WHD OPINION: As an initial matter, the lump sum bonus paid to this client’s employees must be included in the regular rate of pay as it is an inducement for employees to complete the ten-week training period. See 29 C.F.R. § 778.211(c); WHD Opinion Letter FLSA2005-47, 2005 WL 3308618, at *1 (Nov. 4, 2005) (advising that a “Stay Bonus” that encourages employees to remain with the firm is a nondiscretionary bonus that must be included in the regular rate of pay). Because the employer pays the lump sum bonus to employees for completing the ten-week training and agreeing to additional training without having to finish the additional training, the lump sum bonus amount must be allocated to the initial ten-week training period.
Based on the facts provided, it is appropriate for the employer to allocate the lump sum bonus of $3,000 equally to each week of the ten-week training period. Each week of the ten weeks counts equally in fulfilling the criteria for receiving the lump sum bonus, as missing any week (regardless of whether the employee worked overtime in that week) disqualifies the employee from receiving the lump sum bonus. Also, there are no facts provided which would make it inappropriate to assume equal bonus earnings per workweek. See 29 C.F.R. § 778.209(b); Vasquez v. TWC Admin. LLC, 254 F. Supp. 3d 1220, 1233 (C.D. Cal. 2015) (concluding that an employer’s method of dividing bonus equally among workweeks was not unreasonable merely because employees worked slightly more or less than forty hours per week).
The employer must then calculate the additional overtime pay due in those workweeks of the ten-week training period that the employee worked more than 40 hours. See 29 C.F.R. § 778.209(b) (“[A]dditional compensation for each overtime week of the period may be computed and paid in an amount equal to one-half of the average hourly increase in pay resulting from bonus allocated to the week, multiplied by the number of statutory overtime hours worked in that week.”).
29 USC 207(e) – SCROLL DOWN TO SECTION 207>(e) “Regular Rate” defined”
29 CFR 778.211(c) – Discretionary bonuses
29 C.F.R. § 778.209 – PART 778—OVERTIME COMPENSATION §778.209 Method of inclusion of bonus in regular rate. (a) General Rules (b) Allocation of bonus where bonus earnings cannot be identified with particular workweeks.