Regular rate FLSA calculations accounting for bonuses: Part 1 of 3.
Excerpted from: Stephen Bruce Ph.D., PHR
According to FLSA Overtime, at the rate of at least time and one half, must be paid on all hours worked over 40 in a workweek at the individual’s “regular rate,” not on the nominal hourly rate. FLSA requires that nondiscretionary bonuses must be included in the regular rate of pay. Non-discretionary bonuses include those that are announced to employees to encourage them to work more steadily, rapidly, or efficiently, and bonuses designed to encourage employees to remain with a facility.
The Department of Labor states that few bonuses are discretionary under the FLSA, and therefore few can be excluded from the regular rate.
So, to calculate the amount of the overtime premium, you must first adjust the pay to include the bonuses and then calculate the overtime premium. In practice, it’s often the case that you award bonuses after a paycheck has been issued, and in that situation, you must go back and recalculate the overtime and pay the difference. It’s usually a small amount, but it still must be paid. Referral bonuses paid for recruitment of new employees are not included in the regular rate of pay if they meet certain conditions (voluntary, not time intensive, after hours among friends and family).
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