March 26, 2020

FLSA Foible: One Word Makes All the Difference

The U.S. Department of Labor (DOL) lent some clarity to its less-than-clear response to the other March 26th Opinion letter.  In this instance, an employer offered employees a longevity bonus. The policy reads that employees “shall be entitled to receive an incentive award” if they had been with the employer for five or more years.”  Similarly, this employer wanted to know if the value of this bonus had to be included in non-exempt employees’ regular rate of pay for overtime calculations under the Fair Labor Standards Act (FLSA).

The DOL looked at this payment under a different exception. “[P]ayments in the nature of gifts…, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency” may also be excluded from the regular rate of pay.  So, was this longevity bonus a gift? The DOL said, “No.”  Why? Because of one word: “shall.”  The DOL explained that while the policy left the form and time of the payment to the employer’s discretion, it did not give the employer discretion to deny the award to any qualifying employee. Payment was “required.” It was not a gift. As a result, it must be included in the regular rate of pay.

Tip: Consider using “may” rather than “shall”.  I appreciate the DOL continuing to provide this additional information (hint, hint), “If, on the other hand, the City’s Resolution stated that ‘eligible employees of the City may be entitled to longevity pay’ of up to a maximum amount that depends on tenure and left the actual amount of longevity pay, if any, up to City officials to determine…such, the longevity payments could be excluded from the regular rate.”