It’s fairly safe to say that most employers are well aware of their obligation to pay certain employees overtime under specified circumstances. What may be less clear is which bonuses and other incentives must be included in the calculation.
Recently, the Wage and Hour Division of the U.S. Department of Labor (DOL) recovered $259,474 in overtime pay for 939 employees of a manufacturer after an investigation found that the company had failed to include bonuses and other incentives in its overtime pay.
All bonuses not the same
Under the Fair Labor Standards Act (FLSA), hourly “nonexempt” wage earners generally must receive overtime pay for hours worked beyond 40 hours per workweek. A workweek doesn’t need to be a calendar week — for example, a Wednesday to Tuesday workweek would qualify. The FLSA provides that overtime must be paid at one and a half times an employee’s regular rate of pay.
Discretionary bonuses aren’t included when determining regular rate of pay. These are bonuses that an employer chooses to grant, determines the amount, and for which there’s no contractual obligation nor eligibility guidelines. However, employers must include other types of bonuses or incentives when calculating regular rate of pay, such as:
- Incentive bonuses, which may include production incentives for both individuals and groups,
- Attendance incentives,
- Longevity bonuses
- Shift and “dirty work” differentials, and
- Piecework incentives.
Overtime calculations should also include on-call and cost-of-living bonuses, as well as “push money” distributed to employees of retailers that received the funds from distributors or manufacturers for promoting particular products.
The investigation’s findings
In the aforementioned DOL investigation, the agency concluded that the employer in question failed to include the following bonuses or incentives when calculating overtime pay:
- Bonuses for reaching quarterly sales and safety goals,
- Incentives paid for working night shifts and acting as trainers for other employers,
- Bonuses for perfect attendance,
- Additional pay for every hour worked during peak production seasons, and
- Incentives for personal safety performance during peak production seasons.
As a result, the overtime rates paid by the company were lower than those required under the FLSA.
Consider all factors
Jamie Benefiel, a district director of the Wage and Hour Division, was quoted in the DOL’s news release about the investigation as saying: “Employers must understand all applicable rules when it comes to paying workers overtime. This includes adding bonuses and incentive pay when factoring overtime pay. Anything less robs workers of their hard-earned wages.” If your organization pays employees overtime, contact us for help complying with the latest rules and regulations.
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