Phone: (888) 889-9432

Lump Sum Nondiscretionary Bonuses Must Be Included in Regular Rate

In addition to the Department of Labor (DOL) providing their opinion on whether compensation on a per-project basis satisfies the salary requirements for the minimum wage and overtime rules exemption under the Fair Labor Standards Act (FLSA), as mentioned in the prior article “DOL Issues Opinion on Per-project pay and Salary Basis Test,” they also released an opinion letter pertaining to lump sum nondiscretionary bonuses and how those bonuses may impact the exemption status of an employee from the minimum wage and overtime rules under the FLSA. A non-discretionary bonus is an expected bonus paid due to a contract or agreement that has been made between the employer and employee and it is usually given to the employee at an agreed upon time or interval–either monthly, quarterly or annually.

Within this opinion letter, the DOL states that lump sum nondiscretionary bonuses do count toward an employee’s salary when determining whether an employee meets the exemption parameters. To be considered exempt from the minimum wage and overtime rules, the employee must be paid on a salary or fee basis and must meet a standard salary level as outlined by the DOL. As of January 1, 2020, the DOL increased the standard salary level from $455 per week ($23,660 annually) to $684 per week ($35,568 annually). Thus, any employee making less than $684 per week must be considered non-exempt and the minimum wage and overtime protection rules apply.

Additionally, the DOL states that when an employer pays an employee a nondiscretionary bonus, it is important to allocate it appropriately to ensure proper and decisive determination of exemption status. If the bonus is only issued during one week, then that bonus must be added to that employee’s weekly compensation. However, if a bonus covers multiple weeks of payment, the employer has three options:

  1. Allocating the bonus “among the workweeks of the period in proportion to the amount of the bonus actually earned each week;”
  2. If proportional allocation is not possible, the employer may “assume that the employee earned an equal amount of bonus each week of the period to which the bonus relates;” or
  3. If neither of the options above is appropriate, the employer may “assume that the employee earned an equal amount of bonus each hour of the pay period.”

While this is an opinion letter released by the DOL and not an official update to the FLSA, employers are encouraged to be mindful of the guidance and should consider following by the DOL’s suggestions for any nondiscretionary bonuses provided in the future.

Read the Legal Update.

Contact your Cowden representative for more information on this or other compliance issues.