Payroll procedures for handling bonuses are affected by the(Fair Labor Standards Act). While such bonuses can increase morale, provide incentive to work harder, and entice strong applicants to join a company, improper treatment of employee bonuses can lead to FLSA violations.
Payroll1. Should bonuses be included in non-exempts' regular rates of pay? questions arise about whether bonuses are included in non-exempts' regular rates of pay; how bonuses affect overtime pay; and whether long-term bonuses must be redistributed over previously calculated overtime rates.
Most bonuses must be included in non-' regular rates of pay when calculating overtime.
Bonus payments based on criteria related to attendance, production, efficiency, quality or quantity of work, or any other work performance standard must be calculated.
Bonuses that are exempt from the overtime calculation include:
payments made for gratuitous reasons;
bonuses made as gifts on special occasions that aren't measured by, or dependent on, hours worked, production, or efficiency;
discretionary bonuses (the payment and amount of the bonus is solely your discretion and the employee is not entitled to it under any contract, agreement, or promise); and
- bonuses made as profit-sharing payments from a bona fide profit-sharing plan, trust, or savings program that conforms to Department of Labor (DOL) regulations.
Discretionary bonuses, gifts, and Christmas or other special-occasion bonuses need not be included in the regular rate of pay for overtime calculations. Discretionary bonuses are left up to the employer to decide to pay or not pay; and the amount isn't determined until the end or near the end of the bonus period.
Nondiscretionary bonuses, such as one promised to employees in a particular month, must be added to employees' regular rate of pay, as should other prizes and awards employees may receive for good job performance, etc. Overtime would be calculated normally, as one-and-one-half times that per-hour wage.3. How should quarterly bonuses be included in the regular rate calculation for overtime?
The FLSA requires that non-discretionary bonuses be included in non-exempt employees' regular rates. There are two ways to do this.
First, you can recalculate the regular rate for each week in the bonus period and pay additional overtime. Here's an example. Jack receives a quarterly production bonus. One quarter, his bonus is $200. During that quarter, Jack worked 480 straight time hours and 200 hours overtime. Taking the bonus into consideration, Jack's regular rate increases by 29 cents ($200 bonus divided by 680 total hours) an hour. For every overtime hour he's worked during the quarter, Jack must be paid an additional $29 (200 overtime hours x 14.5 cents).
The other way to account for a bonus is to base it on a percentage of employees' total pay (including overtime). Here's another example. Through November, Harry earns $37,280 in straight and overtime pay. Harry's 10% bonus of $3,728 doesn't have to be included in his regular rate.
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