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DOL Issues Two New Wage and Hour Opinion Letters

Posted Tuesday, January 14, 2020 6:26 am

On January 7, the U.S. Department of Labor Wage and Hour Division (“WHD”) issued two new opinion letters concerning the Fair Labor Standards Act (“FLSA”).  FLSA 2020-1 discusses the method for calculating overtime pay for a nondiscretionary lump sum bonus, and FLSA 2020-2 addresses whether proposed payments to consultants constitute payments on a salary basis.

FLSA 2020-1 arose from an employer who gives employees a lump sum bonus of $3,000 if they successfully complete ten weeks of training and agree to continue training for an additional eight weeks (even if they do not complete the additional eight weeks of training).  Since the bonus is nondiscretionary and paid as an inducement for employees to complete the ten-week training period, it must be included in the regular rate of pay when calculating overtime.  The question was how to calculate overtime pay if an employee works overtime during several of the ten weeks since the lump sum bonus could not be identified with a particular workweek.

The WHD concluded that 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 should be allocated to the initial ten-week training period.  Specifically, the $3,000 should be equally split between each week of the ten-week training period.  The letter explains that each week of the ten weeks counts equally in fulfilling the criteria for receiving the lump sum bonus, as missing any week disqualifies the employee from receiving the lump sum bonus.  Also, no facts were provided that would have made it inappropriate to assume equal bonus earnings per workweek.

FLSA 2020-2 analyzes two of a company’s proposed methods of paying educational consultants it employs to determine whether the methods constitute payments on a salary basis to qualify for the administrative or professional exemption under the FLSA.  In general, an employer may claim the exemption for employees who satisfy the applicable duties tests if the employees are paid “on a salary or fee basis.”  Employees are paid on a salary basis if they receive, each pay period on a weekly or less frequent basis, a predetermined amount constituting all or part of their compensation that is not subject to reduction because of variations in the quality or quantity of work performed.

In Example 1, the company assigns educational consultant A to Project One for 40 weeks, during which the consultant will work irregular hours ranging from zero to 80 per week.  Educational consultant A will be paid $80,000 for the project in 20 biweekly installments of $4,000 (i.e., $2,000 per week) regardless of the number of hours worked in any specific week.

The WHD concluded that this payment structure satisfies the salary basis requirement (provided the payments are not subject to reduction because of variations in the quality or quantity of work performed) because employees would be paid a predetermined amount weekly or less frequently, and the amounts would not vary from week to week or month to month based on the number of hours worked.

In Example 2, while working on Project One, educational consultant A is assigned to Project Two.  Project Two will last eight weeks and educational consultant A will be paid an additional $6,000 in four $1,500 biweekly payments (i.e., $750 per week).  During the four biweekly periods when Projects One and Two overlap, educational consultant A will be paid $5,500 biweekly (= $4,000 Project One + $1,500 Project Two, or $2,750 per week).

According to the WHD, this scenario also complies with the regulations.  “An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement.”  The “additional compensation may be paid on any basis,” such as a flat sum, bonus, or hourly amount, and may be paid for “hours worked for work beyond the normal work week.”  Here, the employee is already paid on a bona fide salary basis, so the additional compensation paid for additional work beyond the scope of the first project can be paid on any basis.  Because the employee’s underlying compensation is not computed on an hourly, daily, or shift basis, the reasonable relationship requirement does not apply.

The letter also mentions that the compensation paid to a consultant might change several times throughout the year depending on the number of projects to which the consultant is assigned and if the scope of a project changes.  According to the WHD, these changes do not necessarily defeat the salary basis exemption, provided the revised payments meet the minimum threshold.  An employee’s exempt status may be undermined, however, if there are such frequent revisions that the amount of the employee’s biweekly compensation for a certain project is rarely the same from pay period to pay period and the circumstances suggest the amount of the payment is, in fact, actually based on the quantity or quality of work performed.

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