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Choose bonus pay method and stick with it

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in Small Business Tax Deduction Strategies

Q. Our company pays monthly bonuses to hourly employees based on the previous month's performance. When calculating overtime, should the bonus pay be included only for the weekly payroll that contains those bonuses, or does it change the overtime rate for other weekly pay periods, as well? —A.A., Tennessee

A. First, it's worth noting that you correctly assumed that the monthly incentive bonuses must be included in the employees' regular rates of pay when computing overtime. Regarding whether the bonus needs to be included only in the week it's actually paid or in the weeks during which it was earned, the choice is yours. Labor Department regulations let employers choose either calculation. That said, you should choose one calculation method and stick with it.

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