New Overtime Guidance explains Lump Sum Bonuses!

What this episode covers

Good morning, Ladies and Gentlemen. And welcome to the People Processes podcast. My name is Rhamy Alejeal and I'll be your host today. I'm the CEO of People Processes. And on this podcast, we dive deep into the tools, loans and yes, processes that you need to know in order to scale and grow your organization. We help organizations all across the United States streamline, optimize, implement and revolutionize their HR operations. We've helped hundreds of companies and thousands of HR leaders across the world get their people processes right. Today, we're talking about a new guidance that came from the about the FLSA that explains how to handle a lump-sum bonus, a little bit more in depth than we've had in the past. I really am excited about this because it answers some questions that have been pending for 60 years. Before we go too deep though, I want to ask you to please subscribe to our podcast. It makes a huge difference to us. You can find us on iTunes, Google podcast, Spotify, Stitcher, pretty much any pod catcher of your choice. You can also subscribe @peopleprocesses.com, which will give you access to some exclusive subscriber only content. Department of Labor regulations provide that the bonus amount is added to the employees other earnings for the week. Total earnings are divided by the total hours worked to arrive at the regular rate. So they make 1000 bucks. They worked, well, let me do it easier. They made for a hundred bucks. They work 40 hours a week, they make 10 bucks an hour, you give them $100 bonus, and now they're making an extra $2 and 50 cents per hour for 1250. Right? And that's their regular rate of pay. If they work 4142 4344 hours, then that regular rate of pay is multiplied by 1.5 to give you that overtime rate of pay. But what if the bonus covers multiple work weeks? That was the issue addressed by the DOL's Wage and Hour Division and their new opinion letter. We haven't linked on our website, it's WHD Opinion Letter FLSA 2020-1. It's from January 7, 2020. Alright, so let's take a fact here. An employer informed its employees in advance that they would receive a lump-sum bonus of $3,000 if they successfully completed 10 weeks of training and agreed to continue training for an additional eight weeks. Employees did not, however, have to actually finish the additional eight weeks to receive the lump-sum bonus. For example, if an employee completed the ten weeks of training and signed up for the additional eight weeks, the employee received the bonus even if he or she only completed one week of the additional training and dropped out. In the scenario that was presented to the DOL, an employee who received the lump-sum bonus ordinarily worked 40 hours per week. However, in week 5 of the 10 week original training, the employee worked 47, and in week 9 the employee worked 48 hours. The employer asked for advice on how to count the bonus and the employee’s regular rate for the weeks that the employee worked overtime. The DOL gave a little conclusion. So in its opinion letter, the Wage and Hour Division concluded that it was appropriate for the employer to use Method #1—that is, to allocate the lump-sum bonus over three times. And equally to each week have a 10 week training period. According to the opinion letter each week of the 10 weeks counted equally and fulfilling the criteria for the bonus, since missing any week would disqualify the employee from receiving the bonus. Moreover, there were no facts being inappropriate to assume equal bonus earnings per workweek, and a court has held that dividing a bonus equally among workweeks is not unreasonable even if the employee worked more or less than 40 hours in a given week. That case link to our site as well as its Vasquez vs TVC admin. Bottom line. Assume that the employee in the scenario presented to the DOL normally earns $10 per hour straight time. Using Method 1#, the employer would allocate the $3000 bucks equally over the...