Finance News & Insights

Reminder: Overtime rate must include certain bonuses

Reminder for your Payroll folks: Certain bonuses must be included in the regular rate of pay. And if they’re not, the Dept. of Labor gets very upset. 

Check out this recent example: Foremen for Bliss Roofing Inc. in Clackamas, OR, were paid nondiscretionary bonuses as part of their compensation.

But their employer failed to incorporate these bonuses in the regular earnings rates for overtime pay purposes, according to the DOL. That resulted in workers not earning time-and-a-half for overtime.

Another problem: The DOL found the employer paid roofers a flat rate for the number of houses they worked on – sometimes for 45 to 50 hours a week.

These practices led to problems with the Fair Labor Standards Act’s (FLSA) overtime provisions. And now the company has to pay $75,606 in overtime back wages.

Discretionary or not?

In order to stay in compliance with the FLSA, it’s important to confirm what kind of bonuses employees receive.

Nondiscretionary bonuses are those that employees know they’ll be receiving ahead of time based on meeting certain goals or other criteria. These bonuses must be factored into earnings rates for overtime pay.

But discretionary bonuses are awarded by an employer after the fact, not announced ahead of time.

When in doubt, clarify with HR and supervisors: What type of bonus have they discussed with employees?

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