Incentive Pay Allowed Under Fluctuating Workweek Method of Overtime Pay

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The federal Department of Labor (DOL) released a final rule on May 20, 2020 addressing whether employers may pay bonuses, commissions, and other types of incentive payments to employees paid under the fluctuating workweek (FWW) method of paying overtime.

The rule states that employers may pay various types of incentive payments to employees working hours that fluctuate from week to week, including bonuses, commission payments, hazard pay, premium payments, or other additional payments. These payments must be included in the calculation of the regular rate of pay, unless specifically excluded under the Fair Labor Standards Act (FLSA).

How Does the FWW Work?

Employees who are paid a salary and whose hours vary from week to week may be paid based on the FWW method. Employers using the FWW method must meet these requirements:

  • Nonexempt employees must be paid on a salary basis, meaning they earn a fixed amount regardless of the number of hours worked in a week;
  • The employer and employees must have a mutual understanding of the fixed salary;
  • The fixed salary must be high enough to at least equal the minimum wage, even during weeks when the greatest number of hours are worked; and
  • The employees’ hours must actually fluctuate from week to week.

Under the method, employees earn a set weekly salary even if they don’t work a full 40-hour week. Because they are nonexempt, they also must be paid a premium if they work more than 40 hours in a week. The FLSA requires nonexempt employees to be paid overtime at time and one-half the regular hourly rate for any hours worked over 40 in a workweek, so an employer must calculate how much a nonexempt salaried employee earned per hour to determine the overtime rate. That rate is paid for all the hours worked, giving the employees the “time” part of the overtime premium. Then, the hourly rate is divided in half to get the “half” part the law requires. Read more here…

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Source: HR Daily Advisor

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