Bonuses for Non-exempt Employees

The US Department of Labor ("DOL") issued a proposal on November 5th to expand access to bonuses and other incentive-based pay for salaried employees whose hours vary from week to week. The expansion makes more non-exempt employees eligible to receive incentive-based compensation. The proposal's comment period ended on December 5th, and is currently under review at the DOL.

The Proposal

The proposal from the Wage and Hours Division ("WHD") of the DOL includes a new method for calculating bonuses and overtime compensation for those non-exempt, salaried workers that work fluctuating hours from one week to the next. In addition to creating a new computation method, this proposal also suggests that bonuses and incentives will be compatible with the compensation structure used for fluctuating workweek employees.

The proposal also requires supplemental or incentive payments to be included with the regular rate of pay for total compensation. This is to ensure that the FLSA guidelines for the rate of pay are met and that people understand what they are being paid for their daily work and what incentives may be available on contingency. By giving companies more flexibility to reward their employees with varying hours, the DOL expects that employees will be compensated more in today's postive labor market. The DOL also expects that the additional flexibility in compensation will make employers more likely to hire new employees.

The Current Rule

Under the FLSA today, access to bonuses only applies to salaried, non-exempt employees who work a standard workweek with a set schedule and within other guidelines. The existing language did not specifically exclude non-exempt employees with fluctuating workweeks from incentive-based compensation, but many employers and job creators didn’t know how to handle providing bonuses to these employees. The proposed rule provides more clarity on incentive-based compensation for employees with irregular hours.

For more information on how to qualify an employee as exempt or non-exempt under the FLSA, see our article Exempt vs Non-exempt Employees

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