The Department of Labor announced a final rule updating regulations governing computation of overtime compensation for salaried, nonexempt employees whose hours vary from week to week.
The method allows businesses to pay certain workers whose hours vary widely each week at half their regular rate, instead of one-and-a-half times, for any hours worked over 40 hours each week.
In announcing the rule, the Department of Labor noted that some businesses will likely promote social distancing in part by "having their employees adopt variable work schedules" and potentially staggering their shifts.
Under the new rule, employers can hire an employees on a "fluctuating workweek" schedule provided the employer, per an agreement with the employee, pays the employee with a fixed salary as straight time compensation, which is separate and apart from overtime premiums, no matter how many hours the employees is asked to work in a particular week.
Under the Fair Labor Standards Act, a worker with fixed hours is guaranteed a minimum wage for all hours worked and 1.5 times that rate for overtime, or hours worked beyond the traditional 40 hours. Unlike traditional overtime compensation, however, a worker with a fluctuating workweek is compensated for overtime at a rate of 0.5 times his or her base rate for each hour worked beyond 40 for a particular week--and the base (or regular) rate must be calculated separately each week depending on the number of hours the employee worked.
The new rule clarifies that bonuses and incentive payments (in addition to fixed salary) must be included in the calculation that determines that week's regular rate of pay, on which the overtime compensation is calculated. This allows employers to provide bonus / incentive compensation to their employees who work fluctuating workweeks. Such bonuses may include a nightshift differential, a productivity bonus, and premium pay for weekend work.
The rule revises a 2011 Obama-era regulation meant to block businesses from shifting the bulk of their base salaries into bonuses. The DOL proposed a similar clarification regarding the interplay between the fluctuating workweek method and incentives in 2008 during the George W. Bush administration, but the rule issued by DOL in 2011 didn't adopt the 2008 version's language, ultimately leading courts to interpret the Obama-era rule in different ways resulting in inconsistent holdings.
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