Ben Penn, Reporter | May 20, 2020, 6:03 AM

• DOL final rule clarifies fluctuating workweek method
• Use of alternate overtime method projected to rise

The Labor Department has finalized a regulation to give employers more flexibility and legal clarity by allowing them to incorporate bonuses when using an alternate overtime pay calculation for workers with irregular schedules.

When it takes effect in 60 days, the final rule will give companies more protection from wage lawsuits, but it also could lead employers to abuse their newfound regulatory freedom by reducing salaries—a concern worker advocates have raised. The DOL framed the regulation, which revives a George W. Bush administration initiative that was quashed by the Obama DOL, as a “final rule to expand American workers’ access to bonuses.”

The rule updates “fluctuating workweek” overtime calculations, an option available for employers under the Fair Labor Standards Act. The method allows businesses to pay certain workers whose hours vary widely each week at half their regular rate, instead of at one-and-a-half times, for any hours worked over 40 each week.

The rule states that bonuses, premium payments, hazard pay, and other incentives are compatible with the regular-rate calculation, rescinding language from the Obama-era rule.

That 2011 regulation blocked employers from including bonuses and other forms of premium payments when calculating the regular hourly rate of pay, which is then cut in half for overtime calculations. The Obama rule was meant to stop employers from reducing salaries by shifting large portions of compensation models to reflect performance and other incentives.

Sparking a Trend?

The fluctuating method isn’t utilized often, but the new rule could lead more companies to consider adopting it as a way to control payroll costs for workers whose hours vary significantly from week to week, while paying them on a partially incentive-based structure.

Fearing a lawsuit, some employers have played it safe by not using the fluctuating workweek method at all, or using it without including bonuses, management attorneys have said.

The rule, after being proposed last year, was the subject of critical comments from Democratic state attorneys general, the National Employment Law Project, and the plaintiffs’ bar. The criticism echoed the Obama DOL’s justification in 2011 for killing the Bush initiative, which had been proposed in 2008.

“The proposed regulation could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees’ compensation into bonus and premium payments, potentially resulting in wide disparities in employees’ weekly pay depending on the particular hours worked,” the Obama DOL said in justifying the 2011 decision not to finalize the proposal.

That 2008 version was issued too late in Bush’s second term for the administration to complete it. While the Trump administration’s effort also comes in an election year, it stands a greater chance of longevity because it’s finalized and scheduled to take effect in July. That would make it tougher and more time-consuming for a potential new president to reverse course next year.

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Source: Bloomberg Law

https://news.bloomberglaw.com/daily-labor-report/new-fluctuating-overtime-rule-shields-employers-from-litigation