FLSA2020-4 — Excludability of referral bonuses from the regular rate of pay

U.S. Department of Labor
March 26, 2020
Dear Name*:
Wage and Hour Division
Washington, DC 20210
FLSA2020-4
This letter responds to your request for an opinion concerning whether referral bonuses that your
client is considering paying its employees must be included in the employees' regular rate when
calculating overtime pay under the Fair Labor Standards Act (FLSA). This opinion is based
exclusively on the facts you have presented. You represent that you do not seek this opinion for
any party that the Wage and Hour Division (WHD) is currently investigating or for use in any
litigation that commenced prior to your request.
BACKGROUND
Your client is an employer that is considering implementation of a program that would offer
certain employees a referral bonus payable in two equal installments. You state that only
employees who do "not work in the Human Resources area" and do not have "any
responsibilities associated with employee recruitment, hiring, selection, or the final decision on
whether the referred job applicant is actually hired" would be eligible for this bonus. You
indicate that participation in the referral program would be strictly voluntary, does not require
significant time beyond submitting the name of a potential recruit, and is limited to after-hours
conversations as part of the referring employees' social affairs.
You describe the amount of the referral bonus being contemplated as "significant." You explain
that the first installment of the referral bonus would be paid to the referring employee when your
client hires the referred employee. The second installment would be paid to the referring
employee on the one-year employment anniversary of the referred employee, provided that the
referring employee is still actively employed. In other words, both the referred employee and the
referring employee must still be working for your client one year after the referred employee was
hired for the referring employee to receive the second installment.
GENERAL LEGAL PRINCIPLES
The FLSA requires payment "at a rate not less than one and one-half times the regular rate at
which [the employee] is employed" to all non-exempt employees for all hours worked in excess
of forty hours in a workweek. 29 U.S.C. § 207(a)(l). The regular rate includes "all
remuneration for employment paid to, or on behalf of, the employee," subject to eight statutory
exclusions. 29 U.S.C. § 207(e). In interpreting "remuneration for employment" and the
statutory exclusions, the Department of Labor (Department) is mindful that a '"fair reading' of
the FLSA, neither narrow nor broad, is what is called for." Sec'y US. Dep 't of Labor v. Bristol
Excavating, Inc., 935 F.3d 122, 135 (3d Cir. 2019) (quoting Encino Motorcars, LLC v. Navarro,
138 S. Ct. 1134, 1142 (2018)). "And that is as should be expected, because employees' rights