Bonus vs. Incentive

5597311

Is there a difference between bonus, ie. christmas and an incentive, ie. performance or referral for overtime reasons?  We have a referral program where employees can get x dollars for referring business to our company.  I have been told since it is such a small amount to not include it in the overtime rate of pay calculation.  The problem I am having is that the calculation is done for the time over an entire month.  I don't feel that this should be spread out over a month as it is not like a performance bonus.  This is a one time incentive just for a referral.  Should this amount be used in the recalculation of overtime and/or should the timeline used be for an entire month or just for that payperiod (two weeks)?

RuthG

Yes, there a difference between bonus, ie. christmas vs incentive (performance or referral) for overtime reasons.  Under the FLSA, bonus payments are divided into discretionary and nondiscretionary types. Nondiscretionary bonuses are included in an employee’s regular rate of pay for the purpose of determining overtime, while discretionary bonuses are not included in an employee’s regular rate of pay to determine overtime.

      Bonuses are discretionary if:

• Both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer; and

• The bonuses are not paid under any prior contract, agreement, or promise causing the employee to expect such payments regularly.

      Bonuses are nondiscretionary if the employer promises, contracts, or agrees to pay a bonus to the employee. Nondiscretionary bonuses include performance bonuses and referral bonuses.

 The bonus you describe sounds like it would be attributed to a one-week period since it is a one-time payment. BLR has the following on claculating bonuses for overtime:

       If a bonus is paid over one weekly period the calculation is simple. For example, an employee who works a 45-hour week at $10 per hour, in a week with no bonus, earns 5 hours of overtime at $15 per hour and the week's total pay is $475 ($400 regular pay and $75 overtime). In a week with a production bonus, the employee's regular rate of pay (for purposes of calculating overtime compensation) is determined by adding the pay for all hours worked at the nonovertime rate plus the bonus and dividing this sum by the total hours worked. Thus, if a $45 production bonus is paid, the regular hourly rate for the week rises by $1 an hour to $11 per hour (45 hours times $10 per hour plus $45, which equals $495 all divided by 45 hours; the overtime rate increases to $16.50 per hour; and the week's total pay is $527.50 ($400 regular pay for 40 hours work, plus $45 bonus, plus $82.50 overtime pay for 5 hours of overtime work).

     If the bonus is attributed to a period longer than a workweek, the bonus may be disregarded in computing the regular rate of pay until the amount of the bonus is determined. Until that time, any overtime is calculated and paid based on the regular rate of pay, exclusive of the bonus. When the amount of the bonus is set, it must be apportioned back over the workweeks of the period during which it was earned. An additional amount of compensation must then be paid for each workweek during the period in which the employee worked overtime. The amount of additional pay is equal to one-half the hourly rate of pay allocable to the bonus for that week multiplied by the number of overtime hours worked in that week. For example, if the employee described above is paid a $400 bonus for a 10-week period during which the employee twice worked 45-hour weeks, $40 of the bonus is attributed to each week. The hourly rate allocable to the bonus is $1, and the employee must be paid an additional $2.50 for each of the weeks in which the employee worked 45 hours (1/2 times $1.00 times 5 hours).