Q. We pay a bonus for not using accrued sick leave. Does that count when determining an employee’s regular rate of pay for overtime purposes?
A. No. Generally, bonuses are included in the calculation of an employee’s regular rate of pay. However, amounts paid to an employee for unused sick leave (in addition to the employee’s normal compensation) do not constitute compensation for hours worked. Therefore, they need not be counted in determining the regular rate of pay.
This rule is limited to situations in which there is a bona fide agreement that the employee will receive a specific amount of sick leave with pay, and the sum paid for unused sick leave is the approximate equivalent of the employee’s normal earnings for a similar period of working time.
A similar exemption applies when employees forgo vacation time. Again, the rule is limited to situations in which there is an agreement or understanding that the employee shall receive vacation with pay, and the sum paid is the approximate equivalent of the employee’s normal earnings for a similar period of work time.
Despite these rules, it’s best not to classify such payments as “bonuses,” to avoid possible inclusion in the employee’s regular rate of pay.
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