DOL Issues Opinion Letter On Calculating Overtime Pay For Non-Discretionary Bonuses Paid for Multi-Week Training Period

According to the requestor, the employer informs its employees in advance that they will be eligible to receive 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. The employer acknowledged that the bonus is nondiscretionary. The employee does not have to complete the additional eight weeks of training, however, to retain the lump-sum bonus. For example, if an employee finishes the ten weeks of training, and signs up for the additional eight weeks of training, but completes only one more week of training, the employee will still receive the lump-sum bonus.

The requestor provided a scenario where an employee works 40 hours per week during eight weeks of the ten-week training period. In week five, however, the employee works 47 hours, and in week nine, the employee works 48 hours. The requestor noted that 29 C.F.R. § 778.209(b) provides two methods of computing overtime pay for bonus earnings that cannot be identified with particular workweeks and asked which method should be used to calculate the overtime payments resulting from the nondiscretionary lump-sum bonus in the case at hand.

Section 7 of the FLSA requires an employer to pay not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. Under 29 C.F.R. § 778.211(c), “bonuses which are announced to employees to induce them to … remain with the firm are regarded as part of the regular rate of pay.” The regulations provide that “if the bonus covers only one weekly pay period,” the bonus amount is added to the employee’s other earnings (except amounts that may be excluded), and the total earnings are divided by total hours worked. 29 C.F.R. § 778.209(a). If the bonus covers a longer period and “[if] it is impossible to allocate the bonus among the workweeks of the period in proportion to the amount of the bonus actually earned each week,” the employer may “assume that the employee earned an equal amount of bonus each week of the period to which the bonus relates ….” 29 C.F.R. § 778.209(b) (emphasis added). If, however, “there are facts which make it inappropriate to assume equal bonus earnings for each workweek,” the employer may “assume that the employee earned an equal amount of bonus each hour of the pay period.” Id. (emphasis added).

The WHD noted that as an initial matter, the lump sum bonus paid to the employees must be included in the regular rate of pay as it is an inducement for employees to complete the ten-week training period. 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.

The WHD concluded that 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. A $3,000 lump sum bonus divided by 10 weeks equals $300 in bonus allocated per workweek to be included in calculating the regular rate of pay. 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 were no facts provided which would make it inappropriate to assume equal bonus earnings per workweek. 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.

As is its typical practice, the WHD noted that its opinion is based exclusively on the facts presented.