Final Rule: Fluctuating Workweek Method of Computing Overtime

On May 20, 2020, the U.S. Department of Labor announced a final rule that allows employers to pay bonuses or other incentive-based pay to salaried, nonexempt employees whose hours vary from week to week. The final rule clarifies that payments in addition to the fixed salary are compatible with the use of the fluctuating workweek method under the Fair Labor Standards Act (FLSA).

In the final rule, the Department:

• Adds language to 29 CFR 778.114(a) to expressly state that employers can pay bonuses, premium payments, or other additional pay, such as commissions and hazard pay, to employees compensated using the fluctuating workweek method of compensation. (The rule also states that such supplemental payments must be included in the calculation of the regular rate unless they are excludable under FLSA sections 7(e)(1)–(8)). The rule grants employers greater flexibility to provide bonuses or other additional compensation to nonexempt employees whose hours vary from week to week, and eliminates any disincentive for employers to pay additional bonus or premium payments to such employees.
• Addresses the divergent views expressed by the Department and courts―and even among courts―that have created legal uncertainty for employers regarding the compatibility of various types of supplemental pay with the fluctuating workweek method.
• Adds examples to 29 CFR 778.114(b) to illustrate these principles where an employer pays an employee, in addition to a fixed salary (1) a nightshift differential and (2) a productivity bonus.
• Revises the rule in a non-substantive way to make it easier to read, so employers will be able to better understand the fluctuating workweek method. Revised 29 CFR 778.114(a) lists each of the requirements for using the fluctuating workweek method, and duplicative text is removed from revised 29 CFR 778.114(c).
• Changes the title of the regulation from “Fixed salary for fluctuating hours” to “Fluctuating Workweek Method of Computing Overtime.”

The Notice of Proposed Rulemaking was available for public comment for 30 days. The Department received approximately 36 comments on the proposal, all of which are available to the public at www.regulations.gov.

Additional Information

• Final Rule: Fluctuating Workweek Method of Computing Overtime under 29 CFR 778.114
• News Release [05/20/2020]: U.S. Department of Labor Announces Final Rule To Expand Access to Bonuses for American Workers
• Fact Sheet #82: Fluctuating Workweek Method of Computing Overtime Under the Fair Labor Standards Act (FLSA) / “Bonus Rule” Final Rule