Q. We wish to offer a variety of incentive bonuses to hourly workers in an attempt to increase business and productivity. Will these bonuses affect the employees’ “regular rate” under the Fair Labor Standards Act () for purposes of calculating overtime?
A. In most cases, yes. Under the FLSA, prizes or bonuses awarded to an employee based on the quality, quantity or efficiency of work performed by the employee during the customary working hours at his or her normal assigned task are considered “additional remuneration.” They must be allocated over the period during which they were earned and operate to increase the employee’s average hourly rate.
This pertains to prizes or bonuses awarded for cooperation, courtesy, efficiency, highest production, best attendance, best quality of work, greatest number of overtime hours, longevity and other similar awards.
By contrast, prizes or bonuses paid for making business referrals or leads (provided the employee is not normally required to make referrals and the referrals required little or no time or work on the employee’s part) and for making bona fide suggestions that are not required, requested or expected of the employee generally do not constitute additional remuneration.
Similarly, discretionary bonuses that are determined at the employer’s sole discretion at or near the end of the period the bonus covers and which are not made pursuant to a contract or other agreement, are likewise generally not considered additional remuneration.
Finally, bonuses based on a percentage of an employee’s total yearly earnings (both straight time and overtime pay) are not considered additional remuneration, without regard to whether the bonus is discretionary.