FLSA2020-1 — Calculating overtime pay for a nondiscretionary lump sum bonus paid at the end of a multi-week training period

U.S. Department of Labor Wage and Hour Division
Washington, DC 20210

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FLSA2020-1
January 7, 2020
Dear Name*:
This letter responds to your request for an opinion on the method for calculating overtime pay for
a nondiscretionary lump sum bonus 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
You state that your client informs its employees in advance that they will be eligible to receive a
lump sum bonus of $3,000 if they successfully complete ten weeks of training and agree to
continue training for an additional eight weeks. You acknowledge that the bonus is
nondiscretionary. The employee does not have to complete the additional eight weeks of
training, however, to retain the lump sum bonus. For example, if an employee finishes the ten
weeks of training, and signs up for the additional eight weeks of training, but completes only one
more week of training, the employee will still receive the lump sum bonus.
You provide a scenario where an employee works 40 hours per week during eight weeks of the
ten-week training period. In week five, however, the employee works 47 hours, and in week
nine, the employee works 48 hours. You note that 29 C.F.R. § 778.209(b) provides two methods
of computing overtime pay for bonus earnings that cannot be identified with particular
workweeks and ask which method should be used to calculate the overtime payments resulting
from the nondiscretionary lump sum bonus in this case.
GENERAL LEGAL PRINCIPLES
Section 7 of the FLSA requires an employer to pay not less than one and one-half times the
employee’s regular rate for hours worked over 40 in a workweek. See 29 U.S.C. § 207. The
FLSA defines the “regular rate” to include “all remuneration for employment paid to, or on
behalf of, the employee,” excluding certain types of compensation provided in Section 7(e) of
the FLSA. 29 U.S.C. § 207(e). Nondiscretionary bonuses count as “remuneration” that an
employer must include in the regular rate of pay. Id.; WHD Opinion Letter FLSA2009-21, 2009
WL 649023, at *1 (Jan. 16, 2009); see also 29 U.S.C. § 207(e)(3) (permitting discretionary
bonuses to be excluded from the regular rate).
Under 29 C.F.R. § 778.211(c), “[b]onuses which are announced to employees to induce them to
... remain with the firm are regarded as part of the regular rate of pay.” For example, “bonuses
[that are] contingent upon the employee’s continuing in employment until the time the payment

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is to be made .... must be included in the regular rate of pay.” Id. Such bonuses are considered
nondiscretionary.
The regulations provide that “if the bonus covers only one weekly pay period,” the bonus amount
is added to the employee’s other earnings (except amounts that may be excluded), and the total
earnings are divided by total hours worked. 29 C.F.R. § 778.209(a). If the bonus covers a longer
period and “[if] it is impossible to allocate the bonus among the workweeks of the period in
proportion to the amount of the bonus actually earned each week,” the employer may “assume
that the employee earned an equal amount of bonus each week of the period to which the bonus
relates ....” 29 C.F.R. § 778.209(b) (emphasis added). If, however, “there are facts which make
it inappropriate to assume equal bonus earnings for each workweek,” the employer may “assume
that the employee earned an equal amount of bonus each hour of the pay period.” Id. ( emphasis
added).
OPINION
As an initial matter, the lump sum bonus paid to your client’s employees must be included in the
regular rate of pay as it is an inducement for employees to complete the ten-week training period.
See 29 C.F.R. § 778.211(c); WHD Opinion Letter FLSA2005-47, 2005 WL 3308618, at *1
(Nov. 4, 2005) ( advising that a “Stay Bonus” that encourages employees to remain with the firm
is a nondiscretionary bonus that must be included in the regular rate of pay). Because the
employer pays the lump sum bonus to employees for completing the ten-week training and
agreeing to additional training without having to finish the additional training, the lump sum
bonus amount must be allocated to the initial ten-week training period.
Based on the facts provided, it is appropriate for the employer to allocate the lump sum bonus of
$3,000 equally to each week of the ten-week training period.
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Each week of the ten weeks
counts equally in fulfilling the criteria for receiving the lump sum bonus, as missing any week
(regardless of whether the employee worked overtime in that week) disqualifies the employee
from receiving the lump sum bonus. Also, there are no facts provided which would make it
inappropriate to assume equal bonus earnings per workweek. See 29 C.F.R. § 778.209(b);
Vasquez v. TWC Admin. LLC, 254 F. Supp. 3d 1220, 1233 (C.D. Cal. 2015) (concluding that an
employer’s method of dividing bonus equally among workweeks was not unreasonable merely
because employees worked slightly more or less than forty hours per week).
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The employer
must then calculate the additional overtime pay due in those workweeks of the ten-week training
period that the employee worked more than 40 hours. See 29 C.F.R. § 778.209(b) (“[A]dditional
compensation for each overtime week of the period may be computed and paid in an amount
equal to one-half of the average hourly increase in pay resulting from bonus allocated to the
week, multiplied by the number of statutory overtime hours worked in that week.”).

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A $3,000 lump sum bonus divided by 10 weeks equals $300 in bonus allocated per workweek
to be included in calculating the regular rate of pay.

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Field Operations Handbook 32c03(c) is being updated to reflect that allocating bonuses equally
to each week of the bonus period is the appropriate method for computing overtime pay on bonus
earnings that cannot be identified with particular workweeks. See 29 C.F.R. § 778.209(b).

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This letter is an official interpretation of the governing statutes and regulations by the
Administrator of the Wage and Hour Division for purposes of the Portal-to-Portal Act. See 29
U.S.C. § 259. This interpretation may be relied upon in accordance with section 10 of the Portal-
to-Portal Act, notwithstanding that after any such act or omission in the course of such reliance,
the interpretation is “modified or rescinded or is determined by judicial authority to be invalid or
of no legal effect.” Id.
We trust that this letter is responsive to your inquiry.

Sincerely,

Cheryl M. Stanton
Administrator

*Note: The actual name(s) was removed to protect privacy in accordance with 5 U.S.C.
§ 552(b)(7).