Q: Our employees are paid an annual lump-sum merit bonus. The full amount is calculated and then split, with half paid the following January and half paid in July. How does this affect employees’ overtime? If it does affect overtime, how many years must we go back?
A: Merit bonuses must be included in employees’ regular rates. You must go back two years. The formula to calculate employees’ overtime is:
Total bonus ÷ total hours worked × 0.5 × total overtime hours worked.
Q: My company pays retroactive annual pay increases by making lump-sum payments, instead of increasing employees’ hourly rates and paying throughout the year. Are these payments treated differently than regular wages?
A: No. Annual pay increases must be included in nonexempts’ regular rates, regardless of whether they’re paid currently or retroactively. On the date the retroactive increase is paid, nonexempts’ regular rates for the entire retroactive period have increased. You may use the formula in the preceding answer to figure employees’ overtime.
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