The Department of Labor (DOL) recently published 6 new opinion letters offering guidance on employee classification, bonuses, overtime exemptions, and family medical leave.
In Part 1, MNK Law covers employee reclassification and bonus exclusion questions that the DOL answers
Reclassification from Exempt to Non-Exempt
Issue: An employer reclassified a Licensed Clinical Social Worker as non‑exempt after removing supervisory duties that made the role exempt.
Question: Does an employee’s role meet the learned professional exemption criteria under Fair Labor Standards Act §13(a)(1), and if so, may the employer still reclassify that employee as non‑exempt?
Takeaway: The DOL confirmed that it is up to the employer’s discretion to classify a qualified employee as non-exempt as long as the employer “pays at least the federal minimum wage for all hours worked and the overtime premium for work in excess of 40 hours in a workweek.”
Bonus Exclusions and Overtime
Issue: An employer in the waste management industry pays $12 an hour to employee drivers. Drivers can also earn additional income from the company’s “Safety, Job Duties, and Performance” bonus plan. The bonuses are supplemental, performance-based and apply to all hours worked within a pay period. The maximum bonus amount is $9.50 per hour. The employer pays the base hourly wages along with the bonus rate but doesn’t include bonus payments in the employee’s overtime premium calculations. The employer only calculates overtime premiums with the base hourly rate of $12.
Question: Does section 7(e) of the Fair Labor Standards Act permit an employer to omit certain bonus payments from the regular rate of pay, and if the payments must be included, how should they be factored into overtime premium calculations?
Takeaway: The DOL confirmed that bonus payments need to be included in an employee’s regular rate of pay for every work week earned. Regular rate of pay isn’t the same as an employee’s hourly pay, but rather it’s based on all compensation connected to the job with eight specific exceptions – including “discretionary bonuses.”
The bonus payments do not qualify as “discretionary bonuses” that can be excluded from regular rate of pay, nor are there grounds for statutory exclusion, therefore the bonus payments should be used to calculate regular rate of pay when considering overtime premiums.
How the regular rate calculated in the above scenario:
An employee works 50 hours in a workweek. Their base hourly wage will be $12 and hourly bonus rate will be $9.50, which means their regular rate is $21.50 per hour. Up to 40 hours of work that week, the employee has a regular rate of $21.50 per hour. After 40 hours, the rate is $32.25 per hour due to federal time-and-a-half requirements for overtime.
ConclusionThese new DOL opinion letters reinforce two key principles for employers: classifying employees as non-exempt is within the employer’s discretion when wage-and-hour requirements are met, and most performance-based bonuses must be included in an employee’s regular rate of pay for overtime calculation purposes. Employers should review current pay practices and classifications to ensure compliance, particularly where roles have evolved or incentive compensation is used.
If you need more information on this topic, please contact us at info@mnklawyers.com.
This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.
