How should we handle bonuses and overtime? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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How should we handle bonuses and overtime?

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Q. We routinely pay our nonexempt employees an annual holiday bonus. What effect, if any, does this have on their regular rates of pay for purposes of calculating overtime?

Under the Fair Labor Standards Act (FLSA), nondiscretionary bonuses must be included in a nonexempt employee’s regular rate of pay for purposes of calculating overtime.

In order for a bonus to be considered “discretionary” and, accordingly excluded from an employee’s regular rate of pay, employers must retain discretion both as to the fact of payment and as to the amount. A bonus is “nondiscretionary,” however, if it is contained in a written or verbal contract or otherwise explicitly promised, if it is based on objective criteria or if it is routinely given.

Your annual holiday bonus probably is “nondiscretionary,” based on the limited facts you presented. That means you must recalculate your nonexempt employees’ regular rates of pay over the past year and, for those weeks in which they earned overtime, you will need to recalculate the amounts owed and pay the difference.

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