Non-discretionary bonuses under the Service Contract and Davis Bacon acts

bonus pay for prevailing wage contractors


The Department of Labor recently issued an opinion letter around the topic of non-discretionary bonuses for prevailing wage contractors. Specifically the letter addresses if federal contractors are permitted to pay non-discretionary bonuses as a lump-sum as opposed to including the bonus in weekly pay.

What is a non-discretionary bonus?
A non-discretionary bonus is not voluntary for federal contractors, it is mandated, generally under a hiring or collective bargaining agreement. Non-discretionary bonuses are often structured as a fixed percentage of wages earned over hours worked which qualify for the bonus.

What question is WHD’s July opinion letter addressing?
Does a Federal Contractor with a prevailing wage workforce have to include non-discretionary bonus pay (that is a fixed percentage of time worked) in the calculation of an employee’s regular pay rate at the end of each workweek, or is it acceptable to pay the bonus at a future date by recalculating rates for past weeks factoring in the bonus?

What is the WHD’s stance?
The opinion letter confirms that employers may either payout non-discretionary bonus funds in an employee’s weekly paycheck OR “disregard the bonus in computing the employee’s regular hourly rate until such time as the bonus can be ascertained.” Once conditions have been met for the bonus to be paid out (usually a time window, for example six months) The employer can retrospectively re-calculate the regular pay rate for each past week which qualified for the bonus and pay the bonus funds across those weeks as one lump-sum. The letter also clarifies that non-discretionary bonuses may not be leveraged as a way to evade overtime pay requirements outlined in the Fair Labor Standards Act. Non-discretionary bonuses must be made above and inclusive of overtime pay.

Helpful resources:

New Wage and Hour Opinion Letters on Nondiscretionary Bonuses, the Highly Compensated Employee Exemption, and Rounding Practices

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