Is a Covid-19 Vaccination Bonus Included in the Regular Rate of Pay?

“Covid, Covid, Covid.”

– President Donald J. Trump

With good news on the horizon, employers are hoping that their workers will take advantage of their front-line worker status to receive one of the approved Covid-19 vaccines. Although many employees are still ineligible, vaccinated employees will ensure a stable workforce through any dips and peaks of the Covid-19 case volume. One way to do this is to encourage employee participation in a vaccination plan through a one-time employer-paid bonus. Nondiscretionary bonuses, however, ordinarily are added to the regular rate of pay and end up boosting the overtime wages due to workers engaged to work more than 40 hours in a week. Thus, since “no good deed goes unpunished” with respect to bonuses, the employer who pays the bonus may have to worry about increasing its overtime liability under Fair Labor Standards Act (“FLSA”).

For the purposes of this blog, let’s consider one situation; a grocery store has several employees and, to encourage their employees to get vaccinated, they offer a one time $75 bonus after the employee shows proof of vaccination. The question then becomes, is that $75 bonus factored into the employees’ regular rate? Nonexempt employees who work more than 40 hours per week are ordinarily entitled to time and one-half overtime premium pay for all the time over 40. The regular rate is used in overtime calculation to determine “time and one-half” pay. Employees who work more than 40 hours in a week are paid 1.5 times their regular rate for each hour worked above 40. See 29 C.F.R. §778.107-110. The regular rate is normally calculated by dividing an employee’s entire compensation by the total number of hours worked in the workweek. The vaccine bonus becomes an issue because the bonus could be added to the regular rate and thus increase their overtime liability.

There are seven or so categories of payments that are excluded from the regular rate pursuant to FLSA statutory scheme as set forth in the regulations. It isn’t self-evident that a vaccine bonus falls within any of those exceptions. When they wrote the statute back in the day, somehow they didn’t have the Covid-19 pandemic in mind. However, under 29 C.F.R. §778.200, it is possible that the vaccine bonus falls into the exclusion for payments made for occasional periods when no work is being performed. The regulations provide a non-exhaustive list such as vacation, holiday, illness, failure for the employer to provide work, or other similar causes. They also list reimbursements for expenses incurred on behalf of the employer and “other similar payments.” See 29 C.F.R. §778.200(2). But the counter-argument is that the bonus is for the benefit of the employer, not the employee, and is meant to reduce the employer’s health care benefit expenses, protect others in the work place, and allow the worker to interact with customers. As such, it is work related.

Accordingly, the argument the bonus is being paid not for hours worked is by no means slam dunk. This category traditionally covers other similar payments which are excludable and do not depend on hours worked, services rendered, job performance, or other criteria that depend on the quality or quantity of an employee’s work. That is not to say that every payment that meets these standards is excludable, but it adds to the argument. Perhaps the strongest argument that employers can make is that this payment is similar to the example listed in section 778.224(b)(4) for the cost to the employer of providing wellness programs. There, the employer is able to exclude from the regular rate its cost of providing vaccination clinics such as the annual flu vaccine. The employer also is allowed to reimburse the cost of a vaccine. But here there is no cost for Covid-19 vaccines under federal law. And the payment is being made directly to the employee rather than a third party who sets up the clinic. Nonetheless the purpose is similar. They both encourage the employee to get vaccinated and the payment has no relation to the quality or quantity of the employee’s work. One would argue that receiving the vaccine is clearly work related, but it still has no relation to the quality or quantity of work the employee provides.

From a policy standpoint, excluding this type of bonus from the regular rate of pay fits in line with other policy decisions that the Wage and Hour Division of the Department of Labor (“DOL”) have made. Many of the exclusions from the regular rate are excludable because they are not related to the employee’s quality of work, therefore they are not related to the work the employee is being compensated for. In addition, the bonus is analogous to a reimbursement in that getting the vaccine is an expenditure of time temployee’s time. In addition, penalizing the employer for providing an incentive for their employees to be safe is creates a bad optic for DOL considering the efforts the rest of the government has taken to encourage citizens and non-citizens alike to make health-conscious choices.

Despite the exclusions in 29 C.F.R. § 778.200(2), if DOL decides its hands are tied and that the payment is included in the regular rate, it is still possible for the employer to limit their liability by requiring employees who receive the bonus to forsake working overtime for the workweek in question. According to 29 C.F.R. § 778.209, a bonus that is attributed to a particular workweek is only used to calculate the regular rate of pay for that work week. Therefore, by restricting an employee’s overtime during that workweek the employer would not incur additional compensation due to the higher regular rate. It is only when a bonus cannot be attributed to a particular work week that the bonus factors into the regular rate for a larger period. This reveals another policy reason not to include a vaccine bonus in the regular rate of pay; it takes money directly out of the employee’s pocket by encouraging employers to limit overtime. While this may have been a good policy objective 60 years ago, the reality is that many employees depend on that time-and-one half premium pay to meet the financial obligations for their families.

While the question of vaccine bonuses remains up in the air, DOL should consider issuing guidance to exclude the payments from the regular rate. This clarification would encourage employers to allow their employees to make the health-conscious decision, benefit the oher workers in th workplace, and lead to societal benefits as well. DOL shouldn’t straight-jacket itself with archaic regulatry inerpretations. Meanwhile, if you are an employer contemplating a vaccine bonus, go into it with your eyes open to the risks, if you don’t factor the bonus into the regular rate and pay any boosted rate of pay due for overtime hours worked.