No New News on Nondiscretionary Bonuses

By Beth Ann Lennon

On January 7, 2020, the U.S. Department of Labor (“DOL”) issued a new Opinion Letter on “nondiscretionary” bonuses.  When a bonus is offered to employees “to induce them to remain” with the company, the DOL considers the bonus to be “nondiscretionary.”  Nondiscretionary bonuses “must be included in the regular rate of pay” for non-exempt employees.  Determining how to allocate such bonuses can get a bit more complicated… When employers require that the employee stick around for some set amount of time to get the bonus and the bonus program does not clearly articulate how much of the bonus was earned in which week, the employer may “assume” each week within that period of time “counts equally in fulfilling the criteria for receiving the lump sum bonus.”  In short, the employer allocates the bonus equally to each week in the time period covered by the bonus.  Then, the employer must calculate overtime – taking into account this added compensation – separately for each workweek in which the employee worked more than 40 hours. 

At the end of the day, this new Opinion Letter is not “new” news – it’s just a reminder that employers must carefully analyze what period of time a bonus is intended to cover and fairly and equally allocate the bonus across that period.  DO NOT attempt to game the system and allocate a bonus in a manner inconsistent with this directive or you could find yourself in trouble.  Another reminder – not covered in the Opinion Letter but still worth noting – don’t forget that state laws, including Colorado’s, often establish overtime requirements in addition to those set by the federal law.  Make sure you are doing all of your overtime calculations in accordance with all applicable laws.