Bonus plans don’t erase your overtime obligations — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Bonus plans don’t erase your overtime obligations

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Q. We plan to roll out an incentive plan for all employees. The incentive would be calculated monthly but paid quarterly in addition to regular pay. As part of the plan, we are eliminating overtime. Can we still have employees punch in to monitor attendance or can that come back to haunt us if they work extra hours to reach the incentive threshold? —J.B., New Jersey

A. Your plans are likely to violate the FLSA in several ways. First, no matter what type of bonus or incentive plan you establish, you must still pay overtime to nonexempt employees for time worked beyond 40 hours in a workweek. Next, ceasing your practice of tracking employees' work time won't get you off the hook, either. In fact, failing to track time for nonexempt employees is legally dangerous. Reason: If you're audited, the Labor Department will ask your employees how many hours they recall working and you won't have any records to dispute their answers.

Finally, before making incentive plan payments, consider this: The FLSA requires that bonus payments be included in an employee's regular rate of pay unless such payments are completely discretionary, such as a holiday gift. This means that most bonuses and incentive plan payments must be counted when calculating time-and-a-half overtime pay.

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