November 15, 2024
Don’t Let Your Bonus Bite Back
There is story after story of good intentions gone awry. Here’s the latest. Employers try to do a good thing, reward employees for performance, productivity, or working unpopular shifts, but end up violating the Fair Labor Standards Act (FLSA).
How? You know that a non-exempt employee must be paid 1.5 times the employee’s regular rate of pay for all hours worked over 40 in a work week. The question is, “What is included in the regular rate of pay?” Non-discretionary bonuses must be included, e.g., you do not have the discretion to decide whether to include them in the regular rate.
The U.S. Department of Labor describes a discretionary bonus, one that may be excluded from the regular rate of pay this way.
- Both the fact that the bonus payment is to be made, and the amount of the bonus payment are at the sole discretion of the employer at or near the end of the period; and
- the bonus payment is not made according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.
‘Tis the season. The DOL describes certain payments, including “certain” holiday bonuses that may be excluded from the regular rate of pay. “Sums paid as gifts, including payments in the nature of gifts made on holidays or on other special occasions, or as a reward for service may be excluded from the regular rate, provided the amounts of the gifts (or payments) are not measured by or dependent on hours worked, production, or efficiency.”
See the DOL’s Fact Sheet #56A with more information and consult with your company’s legal counsel to assess your bonus programs to ensure they comply with the FLSA.
