Professional Service Agreement

DOL Offers New Wage and Hour Compliance Advice

July 17, 2019

The U.S. Department of Labor (DOL) Wage and Hour Division issued opinion letters offering employers guidance on various pay practices, specifically relating to calculating overtime pay as part of nondiscretionary bonuses and rounding practices for calculating hours worked.

Calculating Overtime Pay for Nondiscretionary Bonuses

InFLSA2019-7, the DOL considers a technical question involving the calculation of overtime pay as part of annual and quarterly nondiscretionary bonuses. The DOL explains that, based on the information provided, the employer should recalculate the regular rate for each workweek in the bonus period after paying the annual bonus and then pay the overtime compensation due on the annual bonus. However, the employer need not include the annual bonus in the regular rate calculation until the employer can determine the weekly amount of the bonus at the end of the bonus period. Because the employer can determine the proportionate amount of the annual bonus the employees earn in each work week, in making the recalculation, the employer should retroactively include those exact proportionate amounts in the regular rate for each workweek.

Rounding Practices to Determine Hours Worked

InFLSA2019-9, the DOL considers whether an organization’s rounding practices are permissible under the Service Contract Act (“SCA”), which uses principles applied under the FLSA to determine employees’ hours worked. The organization in question represented that its payroll software rounds each employee’s daily hours worked in a neutral manner. Specifically, the software rounds employees’ hours to two decimal places from six, rounding up when the third decimal is five or higher.

Generally, the SCA requires government contractors to satisfy specific minimum compensation requirements for employees under covered contracts. The FLSA’s regulations acknowledge that it is common and may be appropriate for employers to round time in determining an employee’s hours worked, as long as doing so “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” The DOL’s policy has been to accept rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour, provided the rounding averages out so that the employee is fully compensated for the amount of time they actually worked.

Ultimately, the DOL agrees that the practice was “neutral on its face” and concludes that this method averages out so that the employer fully pays its employees for all the time they actually worked. Therefore, the DOL opines that this rounding practice complies with the FLSA regulations and thus is acceptable under the SCA.