End of a Drought: DOL's Blogging Again

Since President Trump returned to the presidency, I have dropped by the Department of Labor’s news website for the Wage and Hour Division (“WHD”) (found here: https://www.dol.gov/newsroom/releases/whd). WHD’s newsfeed has been a treasure trove for this blogger given that wage and hour law affects many aspects of our advice and represenration of our government contract clients.

During the Biden administratrion, there was a near-daily diet of stories recounting the woes of employers who had underpaid workers or violated child labor laws. At times, we have questioned the sometimes histrionic tone of these press releases or their failure to tell a complete story. For example, we had a case where employees were not paid the prevailing wage called for under the Service Contract Act. However, the Government, not the employer, caused the problem because the Contracting Officer failed to incorporate a current wage determination. Yet, the DOL press release villified the employer and spurred a local news crew to do a report from the company’s entrance. That said, we also have seen many cautionary stories that our clients should heed.

The daily flow of stories about FLSA violations literally dried up on January 20. That drought, however, may have come to an end as of lthis month. First, WHD announced on May 6 that it had recovered a $1.4 million dollar back pay recovery for workers who received less overtime due to the fact that the employer failed to include nondiscretionary bonuses into their regular rate of pay. More recenlty, DOL fined a company for child labor and OSHA violations that were discovered in the course of an investigation of an injury to a 16 year old worker who lost a portion of a finger in a machinery accident.

While child labor violations almost never come up in our practice, overtime issues arise all the time. In fact, the bonus payment problem is one that we’ve seen many times. Stated extremely simply, the issue most commonly presented is whether a bonus payment should or should not be included in an employee’s regular rate of pay for the purpose of computing their overtime rates. If it does, then the time-and-a-half rate payable to employees who work overtime can get boosted up quite substantially. A bonus generally will not be counted in the regular rate of pay if it’s discretionary; however, a bonus that’s nondiscretionary will. Nondiscretionary bonuses tend to be those that automatically will be awarded pursuant to some sort of formula. Discretionary bonuses, on the other hand, aren’t typically given automatically and are not driven by precise metrics.

DOL’s current regular rate regulations went into effect on January 15, 2020. Among a number of other issues regarding what is or is not counted in the regular rate of pay, the rule offers some clarifications about what bonuses are discretionary such that they are excluded from the regular rate of pay. Notably:

·        bonuses are discretionary and excludable if both the fact that the bonuses are to be paid and the amounts are determined at the sole discretion of the employer at or near the end of the periods to which the bonuses correspond. 

·        they are not paid pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.

 Examples of bonuses that may be discretionary include:

·        bonuses to employees who made unique or extraordinary efforts which are not awarded according to pre-established criteria. 

·        severance bonuses, referral bonuses for employees not primarily engaged in recruiting activities.  

·        bonuses for overcoming challenging or stressful situations, employee-of-the-month bonuses, and other similar compensation. Such bonuses are usually not promised in advance and the fact and amount of payment is in the sole discretion of the employer until at or near the end of the period to which the bonus corresponds.

29 C.F.R. §778.211 (effective Jan. 15, 2020). Accordingly, if bonuses are furnished by the employer for “unique or extraordinary efforts” or for “challenging or stressful situations”, or for an “employee-of-the-month” bonus, then the bonus may fall within these safe harbors.

Regardless of whether these safe harbor examples are helpful, to be “discretionary” employers must maintain discretion over the payment of the bonus and the value of the bonus meaning the qualification for the bonus or the determination of its amount can’t be formulaic. 29 C.F.R. §778.211(b). And the employer must retain discretion over these factors until near the end of the period when the bonus will begiven. If the employer promises the bonus beforehand, it forfeits the ability to exempt the payment.

The regulations further say that a promise in January, of a bonus in June, would forfeit the employer’s ability to exempt the payment. If an employer tells its employees that they would receive a certain bonus based on the numbers of hours worked, the bonus will become non-discretionary because they will be expecting a bonus once they reach the specified number. This is not to say that an employer cannot plan 6 months in advance to give a bonus, nor to qualify that bonus on hours worked, only that the employer cannot promise or announce the bonus to the employees because the bonus would then become non-discretionary. 29 C.F.R. §778.211(b).

In addition, these bonuses cannot be paid pursuant to a prior contract or agreement. They may not be promised at the start of employment, or pursuant to a collective bargaining agreement because then they would not be discretionary. Those that are announced for the purposes of inducing employees to work better, quicker, or more efficiently are also not exempt. 29 C.F.R. §778.211(c).

We don’t know the facts that affected DOL’s determination that a bonus problem occurred in its recent announcement; however, the announcement itself may signal that DOL’s enforcement activity is potentially picking up. In any event, the blog may be open for business again.