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Department of Labor Updates: New Salary Threshold and Bonus Opportunities under the Fluctuating Workweek

by: SESCO Management Consultants 27-Dec-2019

In 2019, companies were fined in excess of $333,000,000 which far surpasses any other previous year. This trend will continue and, in fact, SESCO expects more and more employers to be investigated for FLSA compliance. A common misconception is that Wage and Hour disputes fall under the umbrella of Employment Practices Liability Insurance (EPLI). Although some Wage and Hour coverage may be found under EPLI, it is very unlikely and also depends how much you may be paying for coverage and the carrier’s willingness to offer the coverage. As such, your organization should be very proactive in conducting labor and employment law audits to include compliance to the Fair Labor Standards Act so as to avoid significant violations due to noncompliance.

Although not an all-inclusive list, the most common Wage and Hour violations that we find in FLSA cases and in our auditing practice include:

  • Working off the clock or improper deductions – Pre-work, break times (less than 30 minutes), being interrupted while on lunch or working before or after clocking in or out are common violations.
  • Paying nonexempt positions on an exempt salaried basis – A prime violation is paying managers and administrative staff on an exempt guaranteed salary basis when, in fact, these positions are typically nonexempt and thus due overtime for hours worked in excess of 40 hours per week (federal).
  • Not Paying overtime on bonuses and incentives – Employers must compute overtime on nondiscretionary bonus and incentive payments such as commissions for sales, attendance and safety bonuses, incentive payments for a job well done, etc.  

The new guaranteed salary threshold (minimum) will become $35,568 annually or $684 per week on January 1, 2020. This new salary threshold replaces what currently is $23,660 annually or $455 per week. Additionally, the new revision also allows for up to a 10% non-discretionary bonus and incentive payment against the guaranteed salary requirement ($3,556). Therefore, members can apply this bonus and incentive payment against the base salary minimum.

Note: Because an employee is being paid on a guaranteed salary basis as noted above does not exempt the position from overtime.  To be exempt from overtime, the position must meet a white-collar classification (normally the Executive/management classification) and receive the guaranteed salary amount. As noted above in the typical violations, co-managers, assistant managers and the like are typically nonexempt and thus due overtime regardless of how much the salary may be.

The Fluctuating Workweek or variable method of pay which is a nonexempt pay plan allowing employers to pay nonexempt staff such as assistant or co-managers on a guaranteed salaried basis with one-half (½) time over 40 hours versus time and one-half (1.5) is a common and viable program. There is no minimum salary requirement as with the exemption salary standard as noted above. The guaranteed salary simply needs to yield minimum wage for all hours worked.

Under a new proposed rule, the U.S. Department of Labor has published that the Fluctuating Workweek or variable method of pay can include supplemental incentive pay and bonuses.

Founded in 1945 by a Department of Labor Wage-Hour investigator, Dr. Joe W.R. Lawson, Sr., SESCO has a long history in assisting employers in complying with the Fair Labor Standards Act. Contact SESCO at 423-764-4127 or if you should have any questions or wish to conduct a Wage-Hour audit.

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