On July 1, 2019, the U.S. Department of Labor (DOL), issued several opinion letters regarding compliance issues under the Fair Labor Standards Act (FLSA), including (a) the calculation of overtime pay for non-discretionary bonuses, and (b) permissible rounding practices in recording employees’ hours worked.
Calculating an employee’s regular rate of pay
When paying a nondiscretionary bonus that is a fixed percentage of straight-time wages received, an employer may retrospectively recalculate the regular rate for each workweek of the bonus period by averaging the bonus earnings across the workweeks. This means the FLSA does not require the employer to include the bonus in the calculation of the employee’s regular rate of pay for each workweek if the bonus amount is not ascertainable until the end of the bonus period. Thus, the employer may disregard the bonus in its calculation of the employee’s regular rate until the end of the bonus period.
Permissible rounding practices in determining hours worked
The DOL also issued guidance on rounding policies for determining an employee’s hours worked, declaring that so long as an employee’s rounding policy is neutral on its face and averages out to fully pay its employees for all the time they have actually worked, the policy will be in compliance with the Service Contract Act and FLSA. Specifically, it is permissible for an employer to round down by no more than 0.29994 minutes per day, and rounding upward by as much as 0.3 minutes per day, as the practice does not result in the failure to compensate employees for all the time they have actually worked (explaining where the payroll software, for example, rounds 6.784999 hours worked to 6.78 hours, and 6.865000 hours worked to 6.87 hours, the rounding practice is neutral on its face and averages out to fully pay the employee).
If you have any questions regarding FLSA compliance or these opinion letters, please contact your labor and employment counsel at Smith, Gambrell & Russell, LLP.