A New Year Means New Opinion Letters from the U.S. Department of Labor – Bonuses and Per-Project Payments

On January 7, 2020, just days into the new year, the U.S. Department of Labor issued two new opinion letters that address compliance issues related to the Fair Labor Standards Act (“FLSA”).  These letters are official, written opinions by the Department’s Wage and Hour Division that respond to fact-specific scenarios posed by employers and employees alike, and represent the DOL’s official position on that particular issue. Other employers may then look to these opinion letters as general guidance.

The first of these opinion letters, FLSA2020-1, addresses the method for calculating overtime pay for a nondiscretionary lump sum bonus under the FLSA.

Scenario: Employer informs its non-exempt employees in advance that they are eligible to receive a nondiscretionary, lump sum bonus of $3,000 if they successfully complete ten weeks of training and agree to continue training for an additional eight weeks.  Employees are not required to complete the additional 8 weeks of training, however, in order to retain the lump sum bonus.  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 question posed was whether, pursuant to 29 C.F.R. §778.209(b), the employer was required to allocate the lump sum bonus equally to each week or to each hour of the period to which the bonus related.

DOL Opinion: As an initial matter, the DOL noted that the lump sum bonus at issue must be included in the employee’s regular rate of pay because it is an inducement for the employee to complete the ten-week training period.  29 C.F.R. § 778.211(c).  In addition, because the employer pays the lump sum bonus for completing the ten-week training, without requiring the employee to complete the additional training, the lump sum bonus must be allocated to the initial ten-week training period.

Under the circumstances presented, the DOL determined it was appropriate for the employer to allocate the lump sum bonus of $3,000 equally to each week of the ten-week training period.  In so concluding, the DOL reasoned that each of the ten weeks counted equally in fulfilling the criteria for receiving the lump sum bonus, as missing any week of the ten-week training period (regardless of whether the employee worked overtime) would have disqualified the employee from receiving the bonus.  Once the bonus has been allocated, 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.

Next, the DOL issued FLSA2020-2, which addresses whether proposed per-project payments to educational consultants constitute payments on a fee or salary basis under Section 13(a)(1) of the FLSA and applicable regulations, as required in order to trigger the exemption from overtime.

Scenario:  A Company employs educational consultants to provide services to schools and school districts throughout the country.  The consultants are assigned to projects lasting various periods of time.  The Company determines the consultants’ compensation on a per-project basis regardless of the amount of time required to complete the project.  The Company makes payments for the project in “equal pre-determined installments” bi-weekly or monthly.  The total compensation paid to an educational consultant in any particular week or pay period might change several times throughout the year depending on the number of projects to which the consultant is assigned.  Additionally, the Company and its customer (i.e., the school or district) may reevaluate and revise the scope of a particular project after it has commenced.  On unusual occasions, changes to the scope of a project might be significant enough to cause the Company and customer to renegotiate their agreement.  As a result, the total compensation paid to the educational consultant for that project may be changed prospectively, impacting the amount of bi-weekly payments.

DOL Opinion:  The Company’s method of paying the educational consultants on a per-project basis satisfies the salary basis requirement under the FLSA, provided the payments are not subject to reduction because of variations in the quality or quantity of work performed.  Moreover, if the consultant is assigned to multiple projects at one time, payment for any project in addition to the original project satisfies the requirements for permissible “extra” compensation under the FLSA regulations and does not violate the salary basis requirement.  Any prospective changes to a consultant’s bi-weekly payment, due to changes to the scope of the assigned project, would not necessarily defeat the salary basis exemption so long as the revised bi-weekly payment meets the minimum threshold.

However, a consultant’s exempt status may be undermined if the Company and customer engage in such frequent revisions to the project that the amount of the consultant’s bi-weekly compensation is rarely the same from pay period to pay period and circumstances suggest that the amount of payment is based on the quantity or quality of work performed.