Department of Labor Clarifies Calculating Overtime for Bonus

In one of three recent opinion letters, the Department of Labor (DOL) explained how to calculate overtime pay for bonuses given for the completion of training over a period longer than one workweek. The bonus should be allocated equally to each week of the training period, according to the department, which said it would update its Field Operations Handbook to reflect this conclusion.

The DOL issued another wage and hour opinion letter stating an employer that pays educational consultants on a per-project basis could claim the employees were paid on a salary basis and therefore were exempt, assuming they met the duties tests.

Calculating Overtime Pay for Bonuses

In FLSA2020-1, the DOL addressed an employer’s question asking what method should be used to calculate overtime payments resulting from a nondiscretionary lump-sum bonus when bonus earnings cannot be identified with particular workweeks.

The employer told workers that they would be eligible to receive a lump-sum bonus of $3,000 if they completed 10 weeks of training and agreed to an additional eight weeks of training. The bonus was paid regardless of whether the workers completed the additional eight weeks.

The Fair Labor Standards Act (FLSA) regulations provide that if a bonus covers only one weekly pay period, the bonus is added to the employee’s other earnings, and the total earnings are divided by the total hours worked.

The regulations give two methods of computing overtime pay for bonus earnings that can’t be identified with particular workweeks. Under the first method, if the bonus covers a longer period than a weekly pay period, the employer may assume that the employee earned an equal bonus amount each week of the period. Under the second, if there are facts that make assuming equal bonus earnings for each workweek inappropriate, the employer may assume that the employee earned an equal amount of bonus each hour of the pay period.

In the instance discussed in opinion letter FLSA2020-1, the first method should apply, so $300 in bonus is allocated per workweek to be included in calculating the regular rate of pay, the DOL concluded. The employer then must calculate the additional overtime pay due in those workweeks of the 10-week training period when the employee worked more than 40 hours. The DOL noted that no facts would make assuming equal bonus earnings per workweek inappropriate.

Per-Project Payment

The DOL determined in FLSA2020-2 that an employer could pay per project and not upset the salary-basis test for exempt employees.

By Allen Smith, J.D.
Society for Human Resource Management