November 17, 2022

When Bonuses Bite Back

‘Tis the season for year-end bonuses, for some.  For others, there may be bonus opportunities throughout the year, such as for merit, working certain shifts or weekends, and more.  If your company offers any type of bonus to non-exempt employees, be sure you know whether the bonus is (non)discretionary.

The Fair Labor Standards Act (FLSA) requires that the value of any non-discretionary bonus be included in the employee’s regular rate of pay for overtime calculations.  The U.S. Department of Labor recently announced how it reminded one employer of this rule to the tune of more than $1.1M.

What is a non-discretionary bonus? The name may be misleading. It does not refer to the employer’s discretion to continue or stop the bonus program at any time.  The DOL describes a discretionary bonus as one that may be excluded from the regular rate of pay if:

  1.  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
  2. the bonus payment is not made according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.

Practical Application
: Let’s say you have a policy or tell an employee that you will pay an additional $1 per hour if the employee works a particular shift, day of the week, or if the employee increases productivity, etc. The employee relies on that when agreeing to work that shift, weekend, or at an increased level. The result is that the additional money or bonus is likely non-discretionary. You must include it in the employee’s regular rate of pay for overtime calculations.

For more information, including how to calculate overtime based on this adjusted, regular rate of pay, check out the DOL’s Fact Sheet #56C and consult with your company’s employment counsel.