On November 5, USDOL’s Wage and Hour Division issued a press release with the enticing title, “U.S. Department of Labor Announces Proposal to Expand Access to Bonuses for America’s Workers.” Despite the title, the WHD is not unveiling any new FLSA bonus provisions or programs. Rather, it is announcing a Notice of Proposed Rulemaking (NPRM) to address yet another glitch caused by the agency’s 2011 “clean-up regulations” regarding the fluctuating workweek method of paying non-exempt employees (“FWW”— not to be confused with another HR term, “final written warning”). FWW is not commonly used, so for those unfamiliar with it, check back to Wage and Hour Watch for our follow-up to this post which will explain in detail the fluctuating workweek regulations.
[Note: Wage and Hour Watch and others have blogged on other problems created by the 2011 regulations, particularly regarding FLSA rules for tipped employees.]
The glitch I’m referring to involved a disconnect between the preamble and the regulations. In the preamble, the DOL stated: “While the Department continues to believe that the payment of bonus and premium payments can be beneficial for employees in many other contexts, we have concluded that unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime….” The actual 2011 regulations, however, made no substantive changes to exclude bonuses and other premium payments for employees paid under the FWW method. Thus, the preamble’s statement created confusion in the regulated community and the courts. Employers with workers paid under the FWW method who also received bonus or commission pay were faced with tough choices:
- Should they continue paying via the FWW method, but eliminate bonuses and commissions? Employees surely would not take that well unless the guaranteed salary was increased.
- Should they take employees completely off the FWW method, depriving them of the stability of a guaranteed weekly payment, and convert them to the hourly payment method so they can keep their bonuses and commission payments?
- Should they ignore the preamble, continue to provide bonuses and commissions to employees on the FWW method, and hope no challenge was raised?
These choices were particularly difficult in the banking and financial services industries because, at that time, a 2010 DOL Administrator’s Interpretation was in place that said mortgage and other loan officers were generally non-exempt. Most financial institutions had treated these employees as exempt, so many chose to convert them to non-exempt using the FWW method of payment, and with commissions and bonuses. Because mortgage and other loan officers expected and commonly received commissions and bonuses, the preamble comment created problems for those who had been converted in this way.
The NPRM published on November 5, 2019, proposes to clear up the confusion of the 2011 regulations and the preamble to them. If it becomes final, as expected, this new rule should be welcomed by employers and employees, alike (including mortgage and other loan officers). In summary, the NPRM proposed to change the FWW regulation as follows:
- Reverse the 2011 preamble and expressly state in the new regulation that any bonuses, premium payments, or other additional pay of any kind are compatible with the fluctuating workweek method of compensation and that such payments must be included in the calculation of regular rate unless excludable under FLSA sections 7(e)(1)-(8).
- Add examples to better illustrate the regulation.
- Revise the regulation to improve readability.
- Change the title of the regulation to better reflect the purpose of it: from “Fixed Salary for Fluctuating Hours” to “Fluctuating Workweek Method of Computing Overtime.”
The NPRM will be available for review and public comment for 30 days, or until December 5, 2019. Comments may be posted to Regulations.gov. It will likely take several months after that for the DOL to sift through the comments and finalize a rule. Keep in mind this isn’t carved in stone yet. Some proposed rules never become final, and those that are finalized are sometimes different from what was proposed. While that isn’t expected here, you should still stay tuned!